i^  /^.'  ^ 


GIFT  or 

Henry  ¥.    Grady 


THE   FOREIGN  TRADE 
OF  THE  UNITED  STATES 


THE  FOREIGN  TRADE 
OF  THE  UNITED  STATES 


ITS   CHARACTER,  ORGANIZATION 
AND  METHODS 


BY 
L.  C.  FORD  AND  THOMAS  F.  FORD 


WITH   AN    INTRODUCTION    BY 


W.  L.  SAUNDERS 

ASSOCIATION 


CHARLES    SCRIBNER'S    SONS 

NEW  YORK  CHICAGO  BOSTON 


re 


7 


Copyright,  1920, 1922,  by 
CHARLES  SCRIBNER'S  SONS 


Printed  in  the  United  States  of  America 


CONTENTS 

CHAPTEK  PAOB 

I.    The  Nature,  Purpose,  and  Growth  of  In- 
ternational Trade i 

OCCASION  FOR  COMMERCE — THE  CONTROL  AND  DIREC- 
TION OF  COMMERCE — NATURE'S  HANDICAPS  REMOVED 
— THE  EFFECT  OF  IMPROVED  TRANSPORTATION  FACILI- 
TIES— THE  REVOLUTIONARY  EFFECTS  OF  STEAM — THE 
GROWTH  OF  WORLD  COMMERCE — THE  COUNTRIES  LEAD- 
ING IN  INTERNATIONAL  TRADE — FOREIGN  TRADE  AND 
NATIONAL    PROSPERITY — A   WIDER   INTERNATIONALISM. 

II.    Development  of  the  Foreign  Commerce  of 

THE  United  States 13 

COLONIAL  COMMERCE — COMMERCE  FROM  1 776  TO  1 876 
— COMMERCE  FROM  1876  TO  I9OO — THE  FIRST  FOURTEEN 
YEARS   OF   THE   TWENTIETH   CENTURY — SUMMARY. 

III.    The  War  Trade  of  the  United  States    .   .       28 

NEW  GRAND  TOTALS  IN  BOTH  EXPORTS  AND  IMPORTS — 
ANALYSIS  OF  EXPORTS — THE  EXPORTS  BY  CONTINENTS 
AND  COUNTRIES — ANALYSIS  OF  IMPORTS — THE  CONTI- 
NENTS AND  COUNTRIES  FROM  WHICH  WE  BOUGHT — THE 
LATIN   AMERICAN   TRADE — THE   RE-EXPORT   TRADE. 

rV.    Exports   of   the  United   States — Articles 

and  Destination — Trade  Opportunities  .       42 

NATURE  OF  OUR  EXPORTS — COTTON — IRON  AND  STEEL 
MANUFACTURES — MEAT  AND  MEAT  PRODUCTS — WHEAT 
— PETROLEUM,  COPPER,  WOOD  AND  LEATHER  MANU- 
FACTURES—  DESTINATION  OF  OUR  EXPORTS  —  OUR 
TWENTY   BEST  CUSTOMERS. 

V.    Imports    of    the    United   States — Articles 

and  Sources 58 

NATURE  OF  OUR  IMPORTS — ARTICLES  BOTH  IMPORTED 
AND  EXPORTED — SOURCE  OF  IMPORTS — LATIN  AMERICA 
AS  A   SOURCE   OF   IMPORTS. 

V 


MiS234.1 


vi  CONTENTS 

CHAPTER  PAGE 

VI.    Export  Sales  Organization — Manufactures      70 

DIRECT  AND  INDIRECT  EXPORTING — SALES  ORGANIZA- 
TION OF  LARGE  CORPORATIONS — STEPS  IN  DEVELOPING 
A  SALES  ORGANIZATION — SALES  ORGANIZATION  OF  THE 
STANDARD  OIL  COMPANY — THE  UNITED  STATES  STEEL 
CORPORATION — SALES  METHODS  COMMONLY  USED — 
SALESMEN — FOREIGN  AGENCIES — ADVERTISING CATA- 
LOGUES, CIRCULARS,  DIRECT  CORRESPONDENCE — IN- 
TERNATIONAL  PARCEL-POST. 

VII.    Export  and  Import  Commission  Houses   .   .      84 

IMPORTANCE  IN  DEVELOPMENT  OF  INTERNATIONAL 
TRADE  —  SERVICES  OF  EXPORT  COMMISSION  HOUSES  — 
DIFFERENT  TYPES  OF  EXPORT  HOUSES — ADVANTAGES 
OF  SELLING  THROUGH  AN  EXPORT  HOUSE — PROMOTING 
TRADE  THROUGH  EXPORT  HOUSES — THE  HANDLING  OF 
STAPLE  PRODUCTS — THE  COMMISSION  HOUSE  IN  LATIN 
AMERICAN  TRADE. 

VIII.    The  Exportation  of  Raw  Materials  and 

Foodstuffs 93 

METHODS  IN  GENERAL — COTTON — WHEAT — CATTLE — 
TOBACCO. 

IX.    Export  Documentation  and  Freight  For- 
warding     108 

THE  DOCUMENTS  AND  DETAILS  OF  AN  EXPORT  SHIPMENT 
— EXPORT  INVOICES — THE  SHIPPING  PERMIT — CONSULAR 
INVOICES — shipper's  EXPORT  DECLARATION — RAILROAD 
BILL  OF  LADING — STEAMSHIP  BILL  OF  LADING — THE 
shipper's  AGENT  AT  THE  PORT — FREIGHT-FORWARDING 
AGENCIES — manufacturers'  EXPORT  AGENTS — OTHER 
FORWARDING  AGENTS. 

X.    Import  Machinery  and  Methods 120 

IMPORT  REGULATIONS  —  IMPORT  DOCUMENTATION  — 
BONDED  WAREHOUSES  —  THE  APPRAISEMENT  OF  IM- 
PORTS —  IMPORT  METHODS,  MANUFACTURES  —  MER- 
CHANDISE  FAIRS. 

XI.    The   Importation   of   Raw  Materials   and 

Foodstuffs 128 

METHODS  IN  GENERAL — WOOL — HIDES  AND  SKINS — 
RUBBER  AND  GUTTA-PERCHA  —  SUGAR  —  TEA  —  RAW 
SILK — COFFEE. 


CONTENTS  vii 

XII.    The  Transportation  of  Our  Foreign  Com- 
merce      142 

MEANS  OF  TRANSPORTATION — RAILROADS  OF  THE  UNITED 
STATES — INLAND  WATERWAYS — FORTS  AND  TERMINAL 
FACILITIES — THE  AMERICAN  MERCHANT  MARINE — THE 
DEMAND   FOR   FREE   PORTS — OCEAN   TRADE   ROUTES. 

XIII.    Ocean  Freight 160 

IMPORTANCE  OF  OCEAN  TRANSPORTATION — TYPES  OF 
OCEAN  TRAFFIC — OCEAN  FREIGHT  RATES — PARCELS 
RECEIPTS — OCEAN  FREIGHT-AGENTS — C.  I.  F.  QUOTA- 
TIONS— PACKING  6VERSEAS  SHIPMENTS — THE  EFFECT 
OF   PACKING   ON   FREIGHT  AND   TARIFF   CHARGES. 

XrV.    Marine  Insurance i74 

IMPORTANCE — LLOYD'S  ASSOCIATION — DEFINITION  OF 
TERMSj — THE  STANDARD  POLICY  —  LOSSES  INSURED 
AGAINST — PARTIAL  LOSS — WAR  RISK — FIRE — GENERAL 
AVERAGE — BARRATRY,  SEIZURE,  AND  OTHER  PERILS — 
ADDITIONAL  CLAUSES — TAKING  OUT  MARINE  INSURANCE. 

XV.    The  Extension  of  Credit 184 

THE  IMPORTANCE^OF  CREDIT — NECESSITY  FOR  CREDIT — 
CREDIT  CAUTION — METHODS  OF  EXTENDING  CREDIT — 
CREDIT  AGAINST  ACCEPTANCES — OPEN  CREDIT — LONG- 
TIME CREDITS — FOREIGN  CREDIT  DEPARTMENT — HOW 
TO  ASSEMBLE  CREDIT  INFORMATION — HOW  TO  SAFE- 
GUARD FOREIGN  CREDITS — HOW  TO  KEEP  IN  TOUCH 
WITH  FOREIGN  RISKS — THE  COLLECTION  OF  FOREIGN 
ACCOUNTS. 

XVI,    Financing  Export  Shipments 200 

HANDICAPS  TO  OUR  EXPORT  TRADE — BANKING  FACILITIES 
NEEDED — EFFECTS  OF  THE  FEDERAL  RESERVE  ACT — 
METHODS  OF  FINANCING  EXPORTS — BANKERS'  ACCEP- 
TANCES—  DISCOUNTING  DOCUMENTARY  DRAFTS  —  DEL 
CREDERE  GUARANTY — A  TYPICAL  TRANSACTION — COM- 
MERCIAL  LETTERS   OF   CREDIT — CONFIRMED   CREDIT. 

XVn.    Foreign  Exchange 213 

DOMESTIC  EXCHANGE — PRELIMINARY  DEFINITIONS — OC- 
CASION FOR  EXCHANGE — THE  BUYING  AND  SELLING  OF 
EXCHANGE — THE  DISCOUNT  RATE — MONETARY  SYS- 
TEMS— THE  MINT  PAR  OF  EXCHANGE — THE  RATE  OF 
EXCHANGE — THE  GOLD  POINTS — FIXING  THE  RATE  OF 
EXCHANGE — FLUCTUATIONS  IN  EXCHANGE — EXCHANGE 
QUOTATIONS — ADVANTAGES  OF  DOLLAR  EXCHANGE — 
THE  NEED  OF  RECIPROCAL  TRADE  RELATIONS — ARBI- 
TRATED EXCHANGE. 


viii  CONTENTS 

CHAPTER  »AGB 

XVIII.    The  Balance  of  Trade 232 

THE  MERCANTILE  THEORY — BARTER  IN  INTERNATIONAL 
TRADE — THE  TRANSFER  OF  GOLD  AND  THE  BALANCE  OF 
TRADE — ANALYSIS  OF  OUR  TRADE  BALANCE — EQUILIB- 
RIUM IN  FOREIGN  TRADE — TWO  CLASSES  OF  NATIONS  IN 
INTERNATIONAL  TRADE. 


XIX.    Government  Aid  to   Foreign  Trade  ...     245 

THE  KIND  OF  ASSISTANCE  GIVEN — THE  CONSULAR  SER- 
VICE   OF    THE    UNITED    STATES — CONSULAR    REPORTS — 

OTHER   CONSULAR    AID    TO    EXPORTERS CONSULAR   AID 

TO  IMPORTERS — PUBLICATIONS  OF  THE  BUREAU  OF 
FOREIGN  AND  DOMESTIC  COMMERCE — SPECIAL  AGENTS  OF 
THE  DEPARTMENT  OF  COMMERCE — FOREIGN  TRADE  AD- 
VISERS— DIPLOMATIC  AIDS  TO  FOREIGN  TRADE. 


XX.  The  Value  of  Foreign  Investments  and  of  a 
Merchant  Marine  as  Exemplified  by  the 
Commerce  of  the  United  Kingdom    .   .   .     258 

POSITION  OF  THE  UNITED  KINGDOM  IN  INTERNATIONAL 
TRADE — CAUSES  OF  COMMERCIAL  SUPREMACY — THE 
MERCHANT  MARINE  —  MANUFACTURING  —  ENGLAND'S 
FREE-TRADE  POLICY  —  FOREIGN  INVESTMENTS  —  PROG- 
RESS IN  FOREIGN  TRADE — IMPORTS — EXPORTS — DIREC- 
TION  OF   TRADE — TRADE   OF    I915-I918. 


XXI.    Organization  and  Co-operation  in  Foreign 

Trade  as  Exemplified  by  Germany   .   .   .     279 

FOREIGN  TRADE  ESSENTIAL  TO  THE  EMPIRE — FIVE  FAC- 
TORS IN  GERMAN  ORGANIZATION — EDUCATION — GOV- 
ERNMENT CONTROL  OF  RAILWAYS  AND  WATERWAYS — 
THE  WORK  OF  SYNDICATES — THE  CO-OPERATION  OF 
BANKS  IN  INDUSTRY — GERMANY'S  BARGAINING  TARIFF 
— THE  GROWTH  OF  GERMANY'S  FOREIGN  TRADE — IM- 
PORTS— EXPORTS — DIRECTION  OF  TRADE — SUCCESS  OF 
THE   GERMAN   SYSTEM. 


XXII.    The  Foreign  Trade  of  Other  Nations    .   .     294 

FRANCE — ITALY — THE  NETHERLANDS — BELGIUM — POR- 
TUGAL— RUSSIA — OTHER  EUROPEAN  COUNTRIES — CAN- 
ADA— MEXICO— CENTRAL  AMERICA — THE  WEST  INDIES 
— THE  SOUTH  AMERICAN  REPUBLICS — AUSTRALIA — NEW 
ZEALAND — THE   PHILIPPINE  ISLANDS — JAPAN — CHINA. 


CONTENTS  ix 

PAGE 

Questions 311 

Appendix 327 

BIBLIOGRAPHY  ON  THE  TARIFF  RATES  OF  FOREIGN  COUN- 
TRIES— TABLE  OF  IMPORTS  AND  EXPORTS  OF  PRINCIPAL 
COUNTRIES  IN  THE  LAST  PRE-WAR  YEAR — COMMERCE 
WITH  CUBA.  PORTO  RICO,  HAWAII,  AND  THE  PHILIPPINES 
THE  TWELVE  GREATEST  SEAPORTS COUNTRIES  EX- 
CELLING IN  PRODUCTION — THE  WORLD'S  PRODUCTION 
OF  COTTON — THE  WORLD'S  CONSUMPTION  OF  COTTON — 
THE  world's  production  OF  WHEAT — THE  WORLD'S 
PRODUCTION  OF  RUBBER — THE  WORLD'S  PRODUCTION 
AND   CONSUMPTION   OF  COFFEE. 

Index 335 


INTRODUCTION 

The  youth  of  the  United  States  compared  to  the  age 
of  other  great  nations  has  given  her  the  advantage  over 
them  that  she  could  profit  by  their  experience.  But  in 
another  way  it  has  worked  to  her  disadvantage:  she  has 
from  time  to  thne  been  drawn  into  fields  of  enterprise 
v,^holly  new  to  her  in  competition  with  old  nations  accus- 
tomed to  them  from  the  first  and  participants  in  each 
stage  of  their  development.  But  she  has  never  entered 
one  with  less  knowledge  of  principles  and  methods  than 
that  with  which  she  now  takes  a  hand  in  the  complicated 
game  of  foreign  trade. 

In  diplomacy  and  in  war,  to  mention  two  departments 
of   international   competition   into   which   she   has   been 
drawn  as  a  novice,  the  United  States  has  shown  a  capacity 
for  rapid  learning  which,  with  beginners'  luck  perhaps,  has 
brought  her  out  with  credit.     This  new  activity  of  inter- 
national trading  she  will  master  too;    but  since  time  is 
pressing,  few  greater  services  could  now  be  rendered  her 
people  than  that  of  diffusing  an  understanding  of  its  prin- 
ciples and  practice.     It  is  therefore  a  pleasure  to  intro- 
duce a  book  so  ably  designed  for  the  purpose  as  The 
Foreign   Trade  of  the   United  States.     Particularly  is  it 
so  designed  in  being  simple,  elementary,  and  complete: 
smce  international  tradmg  in  this  country  is  in  its  infancy, 
it  should  draw  to  itself  a  large  number  of  beginners  who 
must  in  great  measure  prepare  themselves  for  the  unusual 
opportunities   it   offers   of   rapid    advancement.     Indeed, 
only  the  rising  generation  can  completely  master  the  prob- 
lems and  the  technic  of  foreign  trade— and  this  book  is 
primarily  planned  for  beginners. 

The  basic  reason  why  we  must  become  foreign  traders  in 
a  large  way  resides  in  the  irresistible  action  of  economic 
lav/.    Far-sighted  commercial  men  have  long  recognized 


XI 


xii  INTRODUCTION 

both  the  opportunity  and  the  inevitability  of  engaging  in 
this  field;  and  of  course  we  have  long  done  so  to  some 
extent,  but  in  the  main  in  a  spasmodic  way,  regarding 
foreign  markets  rather  as  a  dumping- ground  for  a  surplus 
of  products  created  by  temporary  conditions. 

But  now,  as  older  nations  did  long  before  us,  we  have 
reached  a  stage  where  our  productive  capacity  is  such  that 
we  shall  nonnally  have  a  constant  surplus  beyond  our 
needs.  This  situation  was  predestined:  we  have  vast  re- 
sources— no  nation  possesses  so  immense  a  supply  of  the 
basic  raw  materials  of  industry.  The  question  was  simply 
one  of  a  lapse  of  time  sufficient  to  allow  for  the  requisite 
growth  of  population  and  its  natural  concomitants  before 
we  should  produce  such  a  surplus  for  export.  The  output 
of  our  manufactories  is  now  greater  than  that  of  any  other 
country.  To  this  degree  of  development  we  were  brought 
suddenly  because  of  the  stimulation  of  the  European  de- 
mands upon  us  during  the  war,  which  quickened  our  de- 
velopment in  plants,  organization,  and  skill.  At  the  same 
time  the  war  acted  to  reduce  the  disadvantage  we  were 
under  in  the  large  item  of  the  cost  of  labor  by  increasing 
the  rates  of  wages  in  Europe  to  a  greater  proportional  de- 
gree than  it  has  increased  them  here.  We  should  show  a 
singularly  uncharacteristic  lack  of  enterprise  if  we  did  not 
recognize  our  opportunity  and  press  our  advantage;  but 
to  do  so  we  must  absorb  the  methods  of  foreign  trade 
with  a  rapidity  corresponding  to  that  with  which  our  situ- 
ation was  changed  instead  of  learning  more  gradually,  as 
we  should  naturally  have  done  had  this  development  been 
subjected  to  no  adventitious  acceleration. 

For  instance,  we  must  overcome  our  somewhat  contemp- 
tuous ignorance  of  foreigners,  which  results  simply  from 
our  inexperience  with  them.  The  great  nations  of  Europe 
have,  by  the  mere  fact  of  contiguity,  learned  to  adjust 
their  points  of  view  to  those  of  foreign  peoples.  Our  com- 
parative geographical  remoteness,  partly,  but  even  more. 


INTRODUCTION  xiii 

the  nearly  absolute  economic  independence  conferred  by 
a  small  population  and  great  but  undeveloped  resources, 
freed  us  until  recently  from  any  pressure  of  necessity  in 
this  direction.  Accordingly  we  are  too  prone  to  ignore 
national  differences:  the  Uttle  peculiarities  of  other  peo- 
ples seem  to  us  insignificant  details,  although  in.  their 
effect  upon  business  relations  they  come  to  have  a  great 
importance.  We  must  then  learn  to  understand  the  ex- 
ceedingly intricate  mechanism  of  foreign  commerce — the 
methods  of  procuring  and  handhng  foreign  business,  the 
details  incident  to  export  shipment  such  as  the  proper 
documentation,  packing,  insurance,  credit  arrangements, 
and  the  whole  general  question  of  financing.  These  mat- 
ters are  admirably  explained  by  the  authors  of  this  book: 
in  a  very  complete  exposition  of  export  technic,  for 
example,  an  order  is  traced  from  the  time  it  is  received 
through  all  its  stages  until  delivery  is  made;  and  this 
same  concrete  method  of  explanation  is  followed  in  the 
explanations  of  the  other  phases  of  commerce. 

But  any  true  perspective  of  foreign  commerce  such  as 
even  a  purely  practical  mastery  of  the  business  of  export- 
ing and  importing  demands  will  be  based  upon  a  compre- 
hension of  the  principles  of  foreign  trade.  They  are  elusive, 
and  can  only  be  mastered  by  close  study.  For  instance, 
no  one  has  mastered  the  subject  without  understanding 
foreign  exchange;  this  indeed  is  the  pivotal  point  in  the 
economics  of  foreign  trade.  Nor  can  any  one  properly  be 
said  to  understand  it  w^ho  has  not  completely  freed  him- 
self from  the  old  fallacy  which  even  so  g?eat  a  mind 
as  Napoleon's  accepted — that  it  is  desirable  the  nation 
should  sell  but  not  that  it  should  buy.  As  the  authors  of 
this  volume  explain  in  their  early  pages,  which  set  forth 
the  principles  of  the  subject,  foreign  trade  is  an  exchange 
of  goods  and  services;  its  ideal  condition  is  one  of  a  bal- 
ance of  imports  and  exports.  A  nation's  aim  should  not 
be,  as  it  was  until  the  day  of  Adam  Smith,  to  sell  her 


xiv  INTRODUCTION 

products  in  vastly  greater  quantity  than  that  in  which 
she  buys  the  products  of  others;  but  rather,  through  a 
multitude  of  transactions  in  exporting  and  importing,  to 
strike  an  exchange  something  like  equal  in  the  total.  The 
sale  of  goods  abroad  is,  therefore,  but  one  half  of  the  opera- 
tion, and  it  cannot  continue  indefinitely  unless  the  other 
half  is  fulfiUed. 

At  present  our  exports  enormously  exceed  our  imports. 
This  excess,  accumulating  in  something  like  geometric  pro- 
gression since  1914,  has  transformed  us  from  a  debtor  into 
a  creditor  nation.  The  unprecedented  fluctuations  in  ex- 
change which  have  brought  the  dollar  to  a  premium  in 
all  of  the  countries  of  the  world  but  those  whose  sales  to 
us  have  exceeded  their  purchases,  are  due  principally  to 
the  large  excess  of  our  exports  over  our  imports.  It  is 
this  condition  as  revealed  in  these  extreme  fluctuations 
that  has  made  the  problem  of  payment  for  our  exports 
one  that  is  bafHing  our  financiers,  manufacturers,  and  ex- 
porters. Whatever  temporary  reHef  may  be  given  by  the 
contrivances  of  credit,  a  proper  adjustment  can  only  be 
reached  when  our  exports  are  paid  for  to  a  far  greater  ex- 
tent than  now,  by  means  of  imports. 

The  principles  underlying  such  matters  as  these  are  ex- 
cellently handled  in  this  book — a  book  that  will  give  sound 
and  valuable  information  wherever  it  is  read  or  where- 
ever  it  is  used  for  reference.  To  the  inexperienced,  the 
student,  or  the  beginner,  it  should  be  invaluable:  one  can 
easily  imagine  it  in  use  as  a  text- book  in  business  schools, 
and  in  universities  which  give  practical  courses  in  political 
economy,  or  in  foreign  trade  itself.  But  even  the  seasoned 
importer  and  exporter  will  prize  it. 

W.  L.  Saunders, 

President  American 
Manufacturers*  Export  Association. 

New  York,  April  28,  1930. 


THE  FOREIGN  TRADE 
OF  THE  UNITED  STATES 


THE  FOREIGN  TRADE  OF  THE 
UNITED  STATES 

CHAPTER   I 

THE  NATURE,   PURPOSE,  AND   GROWTH  OF 
INTERNATIONAL  TRADE 

Occasion  for  Commerce. — The  principle  of  barter  is 
one  that  has  its  foundation  in  human  needs,  human  de- 
sires, and  human  ambitions.  Even  in  the  most  primitive 
state  of  society,  commerce  in  a  restricted  form  exists.  The 
Indian  tribes  of  North  America,  long  before  they  were 
brought  into  touch  with  the  civilization  of  Europeans, 
exchanged  wampum  for  pottery,  ornaments,  skins,  and 
food.  Savage  tribes  of  remote  regions,  quite  outside  the 
sphere  of  the  influence  of  civilization,  invariably  carry 
on  some  trade  with  neighboring  tribes,  not  being  willing 
to  subsist  on  what  they  find  at  hand  or  on  what  they  can 
produce. 

The  saying  *' Distant  fields  are  always  green"  is  well 
illustrated  in  the  realms  of  commerce.  Strange  products 
from  far-off  lands  have  always  had  a  fascination  that  has 
been  of  immense  importance  in  the  development  of  com- 
merce. The  wilKngness  of  savage  tribes  to  exchange  food, 
furs,  and  even  services  for  multicolored  baubles  of  glass, 
sparkling  trinkets,  fantastic  articles  of  clothing,  and  other 
intrinsically  worthless  trifles  has  been  the  means  of  build- 
ing up  vast  private  fortunes  and  of  opening  up  new  trade 
routes. 

The  trade  in  tobacco,  which  reaches  mammoth  proper- 


2        FOREIGN  TRADE  OF  UNITED   STATES 

r      re 

tions,  lis  an  example  of  a  great  industry  founded  on  an  arti- 
ficial taste  deliberately  cultivated.  All  of  the  luxuries, 
such  as  diamonds,  beautiful  fabrics,  hand-wrought  works 
of  art,  pictures,  and  even  books,  each  forming  a  large  item 
in  the  world's  commerce,  are  supplied  in  response  to  a  de- 
mand for  something  more  than  the  tiresome  necessities 
of  life,  which  basically  is  not  so  different  from  the  longing 
of  the  savage  soul  for  beads  and  trinkets. 

No  single  locality,  however  favored  by  the  climatic  and 
other  conditions,  is  capable  of  supplying  the  multifarious 
wants  of  civilized  man.  In  order  to  have  these  wants  sup- 
plied, the  surplus  products  of  one  district  or  country  must 
be  exchanged  for  the  surplus  products  of  many  other 
regions,  some  located  in  the  far  corners  of  the  earth. 
Commerce  is  thus  the  handmaiden  of  civilization,  cater- 
ing to  the  wants  of  man  and  enabling  him  to  exchange 
what  he  has  in  superabundance  for  those  other  commodi- 
ties not  produced  in  his  locality. 

The  Control  and  Direction  of  Commerce. — One  of  the 
fundamental  tenets  of  economics  is  that  the  law  of  supply 
and  demand  is  the  basis  of  commerce.  Where  the  sup- 
ply of  any  product  is  abundant  it  will  be  sent  to  other 
places  where  the  demand  for  this  commodity  is  greatest. 
If  no  efforts  were  made  to  promote  trade  between  nations, 
if  astute  business  men  and  powerful  financiers  did  not 
spend  their  lives  and  efforts  in  building  up  trade  to  redound 
to  their  advantage,  if  all  over  the  world  there  were  no  con- 
certed effort  to  create  a  demand  for  certain  commodities 
produced  by  certain  nations,  if  transportation  routes  and 
transportation  facilities  did  not  influence  and  even  de- 
termine trade,  if  tariff  laws  were  not  made  and  abolished 
in  the  interest  of  trade,  if  there  were  no  government  inter- 
ference whatever  in  commerce,  if,  in  short,  the  most  primi- 
tive conditions  of  barter  prevailed,  this  law  would  still 
hold,  but  the  nature  and  trend  of  commerce  would  be  al- 
together different. 


GROWTH    OF    INTERNATIONAL   TRADE      3 

But  the  wide-awake,  progressive  commercial  nations  of 
to-day  are  not  content  to  produce  only  those  commodities 
nature  has  most  clearly  indicated  for  each  district,  nor 
to  curb  their  production  until  a  demand  develops  spon- 
taneously. The  energetic,  aggressive  captain  of  industry 
is  ever  looking  for  new  fields  to  conquer,  the  production 
and  exchange  of  those  commodities  demanded  by  a  ready- 
made  market  being  a  simple  task  \\ath  little  appeal  to  the 
constructive  genius.  It  is  the  business  of  the  leaders  of 
trade  to  create  markets,  arouse  demand,  construct  trans- 
portation facilities,  develop  new  industrial  regions,  to  con- 
trol and  direct  industry  and  commerce. 

Nature's  Handicaps  Removed. — Does  a  nation  lack  the 
raw  materials  essential  to  the  development  and  mainte- 
nance on  a  large  scale  of  the  industry  of  manufacturing? 
Immediately,  it  constructs  or  arranges  for  the  transporta- 
tion facilities  necessary  to  a  world-wide  trade  and  brings 
from  far-off  lands  those  raw  materials  it  lacks,  converts 
them  into  finished  products,  and  sells  the  surplus  back  to 
the  very  countries  from  which  it  obtained  the  essential 
raw  materials. 

This  is  well  illustrated  in  the  case  of  England,  v/hich  has 
for  years  imported  great  quantities  of  raw  cotton  from  the 
United  States,  and  exported  manufactured  cotton  in  the 
form  of  textiles  to  the  United  States;  has  imported  wool 
from  x\ustralia  and  Argentina,  converted  it  into  yarn, 
worsteds,  and  other  fabrics,  and  sold  these  finished  prod- 
ucts to  those  countries,  among  others,  supplying  the  raw 
material.  Germany,  likewise,  built  up  a  tremendous  for- 
eign trade  by  going  beyond  her  own  domains  for  many  of 
the  raw  materials  of  commerce,  expending  time  and 
thought  and  ingenuity  in  converting  these  into  valuable 
manufactured  products  and  selling  them  to  the  various 
nations  of  the  earth.  The  restrictions  placed  upon  in- 
dustry by  conditions  of  climate,  soil,  and  population  have 
thus  been  effectually  removed,  and  nations  heavily  handi- 


4        FOREIGN  TRADE   OF   UNITED   STATES 

capped  by  nature  have  risen  to  positions  of  industrial  and 
commercial  eminence  through  sheer  enterprise  and  am- 
bition. 

The  Effect  of  Improved  Transportation  Facilities. — 
The  effect  of  adequate  transportation  facilities  on  indus- 
try and  commerce  is  little  short  of  the  marvellous.  When 
transportation  is  expensive  and  dangerous,  extensive 
commerce  can  be  carried  on  profitably  only  in  those  com- 
modities possessing  a  high  value.  When  the  caravan  was 
the  principal  means  of  transportation,  the  only  commodities 
commanding  a  wide  market  were  rare  and  expensive  articles 
such  as  the  precious  metals,  ivory,  costly  woods,  spices, 
and  other  luxuries  of  the  rich  and  powerful.  The  ships 
of  Solomon  which  came  every  three  years  from  Tarshish 
bringing  ''gold  and  silver,  ivory  and  apes,  and  peacocks" 
are  typical  of  early  commerce.  Under  such  conditions, 
commerce  catered  to  the  few,  while  the  great  mass  of  the 
people  were  obliged  to  depend  upon  those  commodities 
produced  in  their  own  or  in  near-by  locaHties.  Such 
staple  commodities  as  rice,  wheat,  corn,  meat,  fruit, 
cotton,  wool,  leather,  and  machinery,  now  the  principal 
articles  of  international  trade,  were  of  Httle  importance  in 
world  commerce  until  comparatively  recent  times,  because 
the  expense  incident  to  transportation  was  too  great  to 
make  a  profitable  world-wide  trade  in  them  possible. 

Water  transportation  has  always  been  the  cheapest, 
and  from  earliest  times  those  nations  having  excellent  har- 
bors and  ports  have  led  in  world  commerce.  From  the 
time  that  the  Phoenician  cities  of  Tyre  and  Sidon,  in  the 
sixth  century  B.  C,  sent  out  their  ships  to  trade  with 
every  settlement  on  the  islands  and  on  the  coasts  of  the 
eastern  Mediterranean  and  of  the  Black  Sea,  everywhere 
founding  trading-stations  and  carr)dng  the  products  of 
one  region  to  another,  returning  with  rich  and  varied  car- 
goes to  be  distributed  far  inland  by  means  of  caravans, 
every  great  nation  has  attempted  in  one  way  or  another 


GROWTH  OF  INTERNATIONAL  TRADE        5 

to  develop  an  overseas  commerce  that  would  enable  it  to 
exchange  its  surplus  products  for  those  of  other  nations. 

Revolutionary  Effects  of  Steam. — Until  steam  was  made 
the  motive  power  of  both  land  and  water  transportation, 
world-wide  commerce  w^as  for  the  most  part  confined  to 
those  regions  near  the  sea.  The  steamboat  has  been  a 
factor  in  commerce  for  less  than  a  century  and  the  rail- 
road for  less  than  eighty  years,  yet  these  two  have  revolu- 
tionized it.  Now,  a  far  inland  region  can  sell  its  products 
in  the  most  remote  parts  of  the  world  and  secure  for  its 
own  use  every  article  made  desirable  by  need  or  whim  or 
fancy.  With  their  corn  the  farmers  of  Illinois  and  Iowa 
can  and  do  purchase  the  products  of  every  race  and  clime. 
French  silks  and  laces  and  gloves;  cunningly  wrought 
toys,  porcelains,  and  fabrics;  English  cutlery,  cotton  and 
woollen  fabrics;  Japanese  silks  and  bric-a-brac;  Chinese 
tea,  lacquered  ware,  and  ivory  carvings;  Swiss  clocks  and 
toys;  Latin- American  coffee,  spices,  and  bananas,  and  a 
myriad  of  other  articles,  are  the  commodities  of  every-day 
life  in  regions  that  were,  not  many  decades  ago,  far  remote 
from  commerce.  The  most  obscure  farmhouse  to-day 
boasts  of  luxuries  which,  less  than  a  century  ago,  were 
beyond  the  dreams  of  avarice. 

The  effect  of  the  railroad  in  developing  commerce  and 
promoting  industry  is  difficult  to  realize.  With  it  come 
settlers,  traders,  speculators,  adventurers,  whose  com- 
bined efforts  result  in  the  development  of  long-neglected 
latent  resources,  and  where  was  a  barren  waste,  a  lonely 
grassy  mesa,  or  an  inaccessible  hill  country  flourishes  a 
land  of  farms,  homes,  banks,  manufactures,  and  allied  in- 
dustries, each  taking  an  active  part  in  the  world's  trade. 
Thus  new  fields 'for  the  extension  of  commerce  are  con- 
stantly developing,  and  the  resources  of  the  world  that 
once  seemed  so  limited  are  found  to  be  incalculable. 

Recent  Growth  of  World  Commerce. — The  last  half- 
century,  with  its  marvellous  developments  in  industry  and 


6        FOREIGN  TRADE  OF  UNITED   STATES 

its  world-wide  improvements  in  transportation  facilities 
on  both  land  and  water,  has  witnessed  the  greatest  growth 
of  the  centuries  in  the  international  exchange  of  commodi- 
ties, culminating  in  1913,  when  the  combined  value  of  all 
articles  entering  the  trade  between  nations  exceeded 
$40,000,000,000,  which  was  just  double  that  of  1900. 
The  reasons  for  the  stupendous  expansion  in  recent  years 
are  many.  Increase  in  the  population  of  the  world  and  in 
the  wants  of  that  population;  a  greater  specialization  in 
industry;  better  and  cheaper  methods  of  production  and 
transportation;  the  development  of  new  fields  for  the 
supply  of  raw  materials,  and  a  more  generally  diffused 
prosperity  resulting  in  greater  purchasing  power,  are  all 
factors  whose  combined  result  made  the  first  thirteen  years 
of  the  twentieth  century  the  period  of  greatest  industrial 
and  commercial  activity  since  the  dawn  of  civilization. 

The  Bureau  of  Foreign  and  Domestic  Commerce  of  the 
United  States  Department  of  Commerce  has  assembled  the 
following  valuable  table  of  statistics,  showing  the  world's 
development  in  population,  production,  vessel  tonnage, 
and  commerce  since  the  year  1800. 

Countries  Leading  in  International  Trade. — Almost 
one-haK  of  the  international  exchange  of  commodities  in 
1913  was  credited  to  four  nations,  the  United  Kingdom, 
Germany,  the  United  States,  and  France,  in  the  order 
named.  The  United  Kingdom  claimed  over  one-seventh 
of  the  total,  Germany  over  one-ninth,  the  United  States 
one-tenth,  and  France  about  one- thirteenth.  Years  be- 
tween 1 9 13  and  191 8,  when  the  nations  engaged  in  the 
World  War  were  devoting  their  energies  to  the  destruction 
of  industry  and  commerce,  do  not  provide  statistics  upon 
which  to  base  any  study  of  the  subject. 

A  development  of  far-reaching  importance  in  interna- 
tional trade  is  the  marvellous  growth  of  the  industry  of 
manufacturing  in  the  United  States,  notably  since  the  open- 
ing of  the  present  century,  whereby  nearly  one-half  of  our 


GROWTH  OF  INTERNATIONAL  TRADE 


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8        FOREIGN  TRADE  OF  UNITED   STATES 

exports  have  come  to  consist  of  manufactured  articles, 
that  are  entering  into  the  keenest  competition  in  the  mar- 
kets of  the  world  with  those  of  the  old-established  manu- 
facturing nations.  The  United  States  produces  more  iron, 
coal,  copper,  petroleum,  and  cotton — the  basic  raw  ma- 
terials used  in  modern  manufacturing — than  any  other 
nation;  its  people  possess  a  natural  aptitude  for  the  use  of 
machinery,  a  genius  for  invention,  great  ingenuity  in  adapt- 
ing means  to  ends,  and  that  indefatigable  energy  that 
sweeps  away  all  obstacles  that  stand  in  the  way  of  achieve- 
ment. A  readiness  to  adopt  large-scale  methods  of  pro- 
duction, to  replace  old  methods  with  new  ones,  and  to 
consolidate  great  industries,  are  all  factors  making  for  the 
increased  output  of  manufactures.  The  effect  of  such  con- 
centration and  consoKdation  in  increasing  production  is 
indisputable;  the  effect  on  the  distribution  of  the  prod- 
ucts of  industry  is  another  question,  which  need  not  be 
considered  here. 

Foreign  Trade  and  National  Prosperity. — To  say  that  a 
nation  is  leading  the  world  in  the  volume  and  value  of  its 
foreign  trade  is  not  equivalent  to  saying  that  the  people  of 
that  nation  enjoy  a  larger  proportion  of  the  comforts  and 
luxuries  of  life,  or  that  they  possess  superior  ability  or 
greater  advantages  than  those  of  other  nations.  It  may 
mean  that  they  live  in  an  unproductive  land  and  are 
obliged  to  depend  upon  a  few  commodities,  which  they  ex- 
change with  more  favored  nations  for  the  necessities  of 
life.  Aden,  a  British  coaHng-station  in  southern  Arabia, 
has  the  largest  per  capita  foreign  trade  recorded,  because 
it  is  a  sterile  country  and  its  people  have  to  import  all 
articles  of  food  and  clothing  as  well  as  building  material, 
fuel,  and  drinking-water.  In  exchange  for  these  commodi- 
ties they  give  their  services  in  coaling  vessels  passing 
through  the  Suez  Canal  and  the  Red  Sea.  Their  standard 
of  living  is  not  high,  and  they  are  not  the  most  prosperous 
people  of  the  globe.     On  the  other  hand,  the  United  States 


GROWTH  OF  INTERNATIONAL  TRADE        9 

ranks  first  among  the  nations  in  the  value  of  its  foreign 
commerce,  and  at  the  same  time  its  people  enjoy  the  high- 
est standard  of  li\ing,  and  no  country  is  more  prosperous. 
From  its  superabundance  it  is  able  to  export  great  quan- 
tities of  products  and  to  obtain  in  exchange  other  commodi- 
ties that  add  greatly  to  the  comfort  and  well-being  of  the 
people. 

The  exchanges  between  the  citizens  of  different  nations 
are  made  possible  when  each  country  produces  a  surplus  of 
one  or  more  kinds  of  commodities,  which  it  is  able  to  ex- 
change for  other  commodities  that  it  lacks.  The  lack  may 
be  due  to  cHmatic  or  other  conditions  which  render  the 
production  of  certain  articles  impossible,  or  to  natural  or 
social  conditions  which  make  their  production  too  expen- 
sive for  common  use.  It  may  be  due  to  a  preference  on 
the  part  of  the  people  for  certain  occupations.  For  in- 
stance, in  the  United  States  it  is  difficult  to  procure  farm 
labor,  our  workers  preferring  city  employment  in  factories 
or  other^\ise.  Hence,  the  production  of  agricultural  prod- 
ucts is  discouraged,  while  manufactures  flourish. 

It  is  popularly  supposed  that  export  trade  is  more 
valuable  than  import  trade,  and  that  it  is  this  branch  of 
commerce  that  must  be  encouraged.  It  may  easily  be 
shown  that  the  gain  to  a  country  is  in  its  imports;  unless  it 
receives  iox  its  exports  commodities  more  desirable  than 
those  parted  with,  there  is  no  advantage  in  the  exchange, 
except  that  derived  by  the  individuals  who  may  make  a 
profit  on  the  transactions.  The  United  States  may  ex- 
port cutlery  to  England  and  import  similar  articles  from 
England,  that  could  be  produced  here  just  as  well  and  just 
as  cheaply.  In  that  case,  the  only  gain  is  that  derived  by 
the  traders  engaged  and  by  the  transportation  and  marine 
insurance  companies.  In  its  broadest  aspects,  then,  for- 
eign trade  is  only  profitable  when  it  adds  to  the  comfort, 
the  ease,  the  gratification  of  the  people  as  a  whole.  In  the 
words  of  Adam  Smith:  ''It  carries  out  that  surplus  part  of 


lo      FOREIGN  TRADE  OF  UNITED   STATES 

the  produce  of  their  land  and  labor  for  which  there  is  no 
demand  among  them,  and  brings  back  in  return  for  it  some- 
thing else  for  which  there  is  a  demand.  It  gives  a  value  to 
their  superfluities,  by  exchanging  them  for  something  else 
which  may  satisfy  a  part  of  their  wants  and  increase  their 
enjoyments.  By  means  of  it  the  narrowness  of  the  home 
market  does  not  hinder  the  division  of  labor  in  any  particu- 
lar branch  of  art  or  manufacture  from  being  carried  to  the 
highest  perfection.  By  opening  a  more  extensive  market 
for  whatever  part  of  the  produce  of  their  labor  may  exceed 
the  home  consumption,  it  encourages  them  to  improve  and 
to  augment  its  annual  produce  to  the  utmost,  and  thereby 
to  increase  the  real  revenue  and  health  of  society. '^ 

A  Wider  Internationalism. — The  movement  toward  a 
wider  internationalism,  growing  out  of  the  World  War, 
is  bound  to  result  in  an  even  freer  exchange  of  products 
among  the  nations  of  the  earth.  The  immediate  effect  of 
the  war  has  been  to  arouse  in  the  nations  engaged  a  de- 
termination to  be  self-sustaining  to  a  degree  never  at- 
tempted since  modern  commercial  methods  have  prevailed. 
It  is  freely  pointed  out  that  the  territorial  division  of  labor 
made  possible  by  foreign  trade  leads  to  extreme  specializa- 
tion, whereby  one  country  or  group  of  countries  may  be- 
come wholly  agricultural  and  another  country  or  group 
of  countries  may  depend  entirely  upon  manufacturing,  to 
a  sacrifice  of  self-sufficiency  that  may  lead  to  serious  diffi- 
culties in  times  of  war  or  stress.  While  such  a  sane  and 
healthful  balance  in  its  industries  as  France  has  been  able 
to  maintain  is  desirable,  extreme  self-sufhciency  entails 
such  a  sacrifice  as  modern  nations  will  hardly  care  to  make 
under  normal  conditions.  The  economic  and  industrial 
waste  of  a  nation's  trying  to  produce  all  that  it  consumes 
is  evident.  The  plan  that  is  bound  to  prevail  is  for  each 
nation  to  devote  the  major  part  of  its  energies  to  the 
production  of  those  commodities  in  which  it  excels  and 
for  which  its  climate  and  natural  conditions  eminently 


GROWTH  OF  INTERNATIONAL  TRADE      ii 


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THE  FOREIGN  TRADE  OF  THE  UNITED  STATES,  THE  UNITED 
KINGDOM,  AND  GERMANY  EXPRESSED  GRAPHICALLY 


12      FOREIGN  TRADE   OF   UNITED   STATES 

fit  it,  and  to  distribute  these  products  to  wide  areas,  receiv- 
ing in  exchange  those  commodities  that  it  cannot  produce 
to  the  best  advantage. 

BIBLIOGRAPHY 
For  Chapter  I 

Clow,  Frederick  R.  Introduction  to  the  Study  oj  Commerce. 
New  York,  191 1. 

Day,  Clive.    History  of  Commerce.    New  York,  1907. 

HoBSON,  John  A.    International  Trade.    London,  1904. 

Lindsay,  W.  S.  History  oj  Merchant  Shipping  and  Ancient  Com- 
merce.   London,  1876. 

Powers,  O.  M.     Commerce  and  Finance.     Chicago,  1903. 

Webster,  W.  C.  A  General  History  of  Commerce.  New  York, 
1903. 

Whelpley,  James  D.     The  Trade  of  the  World.    New  York,  1913. 

Yeats,  John.  The  Growth  and  Vicissitudes  of  Commerce.  Lon- 
don, 1887. 


CHAPTER  II 

DEVELOPMENT  OF  THE  FOREIGN  COMMERCE  OF 
THE  UNITED   STATES 

Colonial  Commerce. — In  the  colonial  period  agriculture 
was  the  chief  occupation  of  the  American  colonies,  with 
the  exception  of  those  comprising  New  England,  where 
fishing,  lumbering,  ship-building,  and  commerce  were 
early  developed. 

In  the  South  were  great  plantations  of  tobacco  and  rice, 
on  which  slave  labor  was  largely  used.  As  each  year's 
crop  was  harvested,  it  was  conveyed  to  the  nearest  port 
and  shipped  to  England.  In  return  for  the  tobacco  and 
rice,  and  for  the  indigo,  tar,  pitch,  resin,  and  lumber,  which 
were  minor  products  exported,  manufactured  articles,  such 
as  clothing,  furniture,  glass,  crocker>^,  hardware,  and 
utensils  were  purchased  in  England.  Even  those  articles 
that  could  have  been  manufactured  easily  and  profitably 
at  home  were  imported.  In  a  country  abounding  in  hard- 
woods, furniture  was  not  manufactured,  and  timber  for 
interior  finish  was  not  even  prepared  for  use,  but  was  sent 
to  England  to  be  dressed  and  then  brought  back.  The 
strict  trade  and  na\agation  laws  imposed  by  England,  the 
scarcity  of  skilled  labor,  and*  the  lack  of  a  mercantile  class 
were  the  principal  reasons  why  manufacturing  lagged  in 
the  South. 

In  the  middle  colonies,  comprising  New  York,  New  Jer- 
sey, Pennsylvania,  and  Delaware,  farming  flourished,  with 
lumbering,  the  milling  of  flour,  and  the  trapping  of  fur- 
bearing  animals  as  important  industries.  Philadelphia 
early  became  the  centre  of  an  active  commerce  with  Eng- 
land and  the  West  Indies.  Grain,  flour,  lumber,  masts  for 
ships,  and  live  stock  were  the  principal  exports. 

13 


14      FOREIGN   TRADE   OF   UNITED   STATES 

The  hardy  seafaring  New  Englander,  prohibited  by  the 
harsh  climate  and  unproductive  soil  from  deriving  his  liv- 
ing from  farming,  turned  to  the  sea  for  a  means  of  liveli- 
hood, and  the  New  England  fisherman,  the  New  England 
ship-builder,  and  the  New  England  navigator  and  trader 
became  no  mean  factor  in  the  commerce  of  the  period.  The 
material  for  ships  was  to  be  had  in  the  forests  adjoining  the 
rivers;  native  ingenuity  and  mechanical  skill  quickly  took 
advantage  of  the  situation,  with  the  result  that  the  Yankee 
seafaring  traders  in  their  stanch  and  daring  sailing-craft 
early  became  known  in  every  comer  of  the  globe.  They 
brought  home  codfish  and  whale-oil  from  the  Grand  Banks 
of  Newfoundland,  and  took  these,  together  with  salt  fish, 
oysters,  and  meat,  shingles  and  barrel-staves,  spars  and 
masts,  grain  and  flour,  horses  and  oxen,  to  the  West  Indies, 
despite  laws  forbidding  colonial  trade  with  these  islands. 
They  received  in  exchange  sugar,  molasses,  wool,  and 
cotton.  They  sold  to  the  West  Indies  more  than  they 
bought,  and  thus  secured  money  and  bills  of  exchange  on 
London  for  the  surplus,  which  were  used  in  discharging  the 
adverse  balance  of  trade  with  England.  English  laws  for- 
bade the  importation  from  the  colonies  of  the  staple  agri- 
cultural commodities  and  fish,  which  were  the  exports  of 
the  middle  and  northern  colonies.  These  products,  which 
included  grain,  flour,  dairy  products,  dried  meats,  fresh  and 
salt  fish,  were  sold  to  the  West  Indies  and  to  southern 
Europe.  A  lively  export  trade  with  Spain  and  Portugal 
early  developed;  it  was  usually  carried  in  ships  of  larger 
tonnage  than  those  engaged  in  the  West  Indian  trade, 
though  300  tons  was  the  capacity  of  the  larger  ships.  As 
English  laws  forbade  the  colonists  to  import  foreign  goods 
unless  they  were  bought  in  England,  the  return  cargo  must 
be  secured  there.  A  common  practice  was  for  a  colonial 
sea-captain  to  sell  his  cargo  in  Spain  or  Portugal,  and  then 
put  in  at  an  English  port,  where  he  either  sold  his  ship  or 
took  on  a  cargo  of  hardware,  cloth,  carpets,  brooms,  and 


DEVELOPIMENT  OF  FOREIGN   COMMERCE     15 

household  utensils,  which  were  the  manufactures  most  in 
demand  in  the  colonies. 

But  these  bold  Yankee  traders  did  not  confine  their  activi- 
ties to  a  few  regions.  Every  European  port  of  consequence, 
the  West  and  East  Indies,  China,  Madagascar,  the  Ha- 
waiian Islands,  the  east  and  west  coast  of  South  America, 
even  the  trading-posts  of  the  western  coast  of  North 
America,  were  well  known  to  them.  New  York,  IMary- 
land,  and  Pennsylvania  were  not  slow  to  participate  in 
this  trade,  which,  while  it  entailed  great  risks,  held  out  the 
chances  of  rich  rewards. 

FOREIGN  TRADE   OF   THE   UNITED   STATES 


Date 


1790 
1800 
1810 
1820 
1830 
1840 
1850 
i860 
1870 
1880 
1890 
1900 
I9IO 
I914 


Imports 
Million  dollars 


25 
91 

85 

74 
63 
98 

174 
354 
436 
668 
790 
850 

1,557 
1,894 


Exports 
Million  dollars 


20 
71 
67 
69 

71 

123 
144 

333 

392 

835 

857 

1.394 

1.745 

2,364 


Total 
Million  dollars 


45 
156 
152 

143 

134 
221 

318 

687 
828 

1,503 
1,647 
2,244 
3,302 
4,258 


The  data  for  this  and  for  all  similar  tables  are  taken  from  the  Statistical  Abstract 
of  the  United  States,  issued  annually  by  the  Bureau  of  Foreign  and  Domestic  Com- 
merce of  the  Department  of  Commerce. 


Commerce  from  1776  to  1876. — During  the  period  of  the 
Revolutionary  War  and  the  Confederation  commerce 
lagged,  but  with  the  adoption  of  the  Federal  Constitution, 
when  commerce  was  given  the  support  of  a  strong  govern- 
ment with  ample  powers  to  protect  and  promote  it,  it  re- 
vived. From  1789  to  181 9  foreign  trade  waxed  strong 
under  the  impetus  of  the  Napoleonic  wars,  reaching  the 


1 6      FOREIGN  TRADE   OF   UNITED   STATES 

climax  in  1807,  when  the  exports  totalled  $108,000,000  and 
the  imports  $138,000,000.  The  principal  exports  were 
wheat,  flour,  and  other  foodstuffs.  A  feature  was  the  re- 
export of  foreign  products,  notably  of  those  from  the  West 
Indies.  During  part  of  the  period  the  value  of  foreign  ex- 
ports exceeded  that  of  our  domestic  exports.  The  imports 
were  chiefly  tropical  products  and  manufactures.  The 
embargo  of  1807  put  a  quietus  on  foreign  trade  for  fifteen 
months,  but  even  with  the  lifting  of  this,  trade  did  not 
thrive  until  after  the  close  of  the  war  of  181 2-14.  For 
three  years  following  the  signing  of  the  Treaty  of  Ghent 
foreign  commerce  was  in  its  heyday,  the  exports  jumping 
from  $6,927,000  in  1814  to  $93,281,000  in  1818,  and  the 
imports  from  $12,965,000  to  $121,750,000.  Reaction 
with  financial  depression  set  in  in  1819.  The  people  then 
turned  their  attention  to  the  great  undeveloped  West,  and 
a  tremendous  migration  to  the  Mississippi  Valley  resulted, 
with  the  consequent  development  of  that  region.  All  of 
the  abounding  energy  of  the  nation  was  thus  turned  in- 
ward, and  foreign  trade  was  given  little  attention  for  over 
a  decade. 

The  development  of  the  West,  however,  combined  with 
greatly  improved  transportation  facilities,  eventually  stimu- 
lated the  commerce  of  the  nation,  which  was  annually 
producing  a  surplus  of  raw  materials  and  foodstuffs  for 
which  an  outlet  was  needed.  Between  1830  and  1850  the 
value  of  our  foreign  trade  nearly  doubled.  The  increase 
of  the  imports  was  even  greater  than  that  of  the  exports, 
because  great  quantities  of  manufactured  and  other  ma- 
terials were  needed  in  the  expansion  that  was  taking  place. 

The  decade  between  1850  and  i860  was  a  halcyon  one 
for  foreign  trade,  especially  on  the  export  side.  The  de- 
velopment of  the  Middle  West  was  reflected  in  the  un- 
precedented quantities  of  wheat,  corn,  and  flour  exported, 
while  the  extension  of  the  cotton  area  nearly  tripled  the 
exports  of  raw  cotton.    Other  important  exports  were  leaf 


DEVELOPMENT  OF  FOREIGN  COMMERCE     17 

tobacco  and  forest  and  mineral  products,  while  manu- 
factures shot  up  from  $23,223,000  in  1850  to  $48,453,000  in 
i860. 

While  foreign  commerce  naturally  fell  off  during  the 
Civil  War,  it  is  notable  that  the  falling  off  was  ahnost  en- 
tirely confined  to  cotton  and  cotton  manufactures.  Even 
in  the  height  of  the  conflict  agricultural  exports  increased 
in  response  to  the  greater  demand  from  abroad,  caused 
by  partial  crop  failures  there.  Just  as  in  the  World  War, 
the  women  willingly  took  the  places  of  men  in  the  fields 
and  elsewhere,  so  that  there  was  no  dearth  of  production 
except  in  the  South. 

During  the  war  agricultural  products  continued  to  con- 
stitute fully  three-fourths  of  our  ex-ports.  Manufactures 
increased,  too,  and  a  larger  surplus  was  left  for  export  ow- 
ing to  the  cutting  off  of  the  trade  between  the  North 
and  South.  Higher  prices  helped  to  swell  the  total,  but 
the  increase  of  exports  was  in  quantity  as  well  as  in  value. 

The  high  war  tariff,  together  with  the  blockade  of  the 
South,  materially  decreased  imports  during  the  war,  though 
the  value  of  these  in  1864  was  only  $37,000,000  less  than 
in  i860.  The  change  in  our  foreign  trade  that  followed  the 
Civil  War  is  thus  summarized  in  Johnson  and  Heubner's 
History  of  Domestic  and  Foreign  Commerce  of  the  United 
States: 

The  decade  following  the  Civil  War  marks  the  transition  to  a  new 
era.  Protective  tariffs  were  definitely  adopted  with  the  avowed 
purpose  of  keeping  out  foreign  and  developing  domestic  manu- 
factures. Large-scale  manufacturing,  begun  during  the  war,  de- 
veloped rapidly  and  the  foundations  of  the  great  trusts  of  the 
twentieth  century  were  laid. 

The  Civil  War  affected  the  foreign  trade  not  only  through  its 
influence  upon  the  tariff  policy,  but  also  by  encouraging  the  con- 
centration of  capital.  The  expansion  of  business  in  the  Northern 
States,  which  occurred  during  the  war,  caused  the  free  competitive 
system  to  begin  to  break  down.  During  the  war,  consohdation 
began  and  the  process  has  continued  to  the  present  in  almost  every 


1 8       FOREIGN   TRADE   OF   UNITED    STATES 

branch  of  business  except  agriculture.  Its  effects  on  commerce, 
domestic  and  foreign,  have  been  manifold.  Aside  from  the  many 
effects  which  are  the  subject  of  controversy,  it  has  been  clear  that 
the  large  producers  have  been  able  to  compete  successfully  with 
producers  of  foreign  wares;  and  that,  with  certain  exceptions,  the 
rapid  progress  which  has  been  made  in  the  exportation  of  manu- 
factures has  been  brought  about  largely  through  the  efforts  of  the 
great  industrial  consolidations. 

Commerce  from  1876  to  1900. — This  period  was  marked 
by  the  steady  advance  of  the  value  of  manufactures  ex- 
ported, and  by  the  change  from  an  unfavorable  to  a  favor- 
able balance  of  trade,  regularly  maintained.  Everywhere 
American  manufacturers  laid  siege  to  and  won  foreign 
markets.  In  1874  the  manufactures  exported  constituted 
only  18.8  per  cent  of  total  exports;  by  1900  they  had  ex- 
panded to  35.4  per  cent  of  the  total  and  their  value  had 
increased  over  fourfold,  or  from  $107,000,000  to  $485,000,- 
000. 

While  agricultural  exports  more  than  doubled  in  value 
in  this  period,  they  became  of  less  relative  importance, 
though  they  still  constituted  61  per  cent  of  the  total  ex- 
ports in  1900. 

The  same  condition  was  reflected  in  the  imports,  where 
two  changes  are  striking:  first,  the  relative  importance 
of  manufactured  imports  declined,  and,  second,  those  crude 
materials  for  use  in  manufacturing  won  a  position  of  un- 
precedented importance,  climbing  from  6.2  to  13.6  per  cent 
of  total  imports  and  more  than  doubling  in  value.  This 
class  of  imports,  destined  to  play  a  more  and  more  important 
part  in  our  national  life,  includes  crude  rubber,  wool,  hides 
and  skins,  and  textile  fibres. 

The  change  in  the  balance  of  trade,  whereby  exports 
exceeded  imports  in  value,  is  one  marking  a  new  era.  In 
1874  the  value  of  the  nation's  exports  exceeded  that  of  the 
imports  by  $18,876,000.  In  1875  the  balance  swung  back 
in  favor  of  imports,  but  since  that  date  the  trade  balance 


DEVELOPMENT  OF  FOREIGN  COMMERCE     19 

has  been  against  the  United  States  only  three  times,  in 
1888,  1889,  and  1893. 

The  First  Fourteen  Years  of  the  Twentieth  Century. — 
The  period  from  1900  through  19 14  was  one  of  astounding 
industrial  and  commercial  activity.  The  foreign  trade  of 
the  United  States  advanced  from  $2,244,000,000  in  1900 
to  $4,258,000,000  in  1 9 14.  The  imports  rose  from  $850,- 
000,000  to  $1,894,000,000;  the  exports  from  $1,394,000,000 
to  $2,364,000,000.  While  the  increase  was  partly  due  to 
higher  prices,  the  actual  increase  in  quantity  and  volume 
was  enormous. 

In  analyzing  the  foreign  trade  of  this  period  the  one 
outstanding  fact  is  the  unprecedented  increase  in  the  ex- 
ports of  manufactures.  While  m^anufactured  wares  had 
forged  ahead  so  as  to  form  a  highly  important  part  of  our 
export  trade  before  the  close  of  the  nineteenth  century, 
their  gain  in  the  first  fourteen  years  of  the  twentieth  cen- 
tury far  surpassed  that  of  any  previous  period. 

In  1900  manufactures  exported  were  valued  at  $485,- 
000,000;  during  the  fiscal  year  ending  June  30,  1914,  their 
value  was  $1,099,000,000.  Again,  in  1900  manufactures 
constituted  35.4  per  cent  of  our  total  exports;  in  1914  they 
constituted  47.2  per  cent  of  the  total. 

This  increase  reflected  the  great  industrial  development 
of  the  United  States,  which  doubled  the  total  output  of 
manufactured  articles  between  1900  and  1914,  the  value  of 
aU  manufactured  wares  produced  in  the  latter  year  being 
estimated  at  $40,000,000,000. 

In  this  period  the  great  corporations,  such  as  the  Standard 
Oil  Company  and  the  United  States  Steel  Corporation, 
with  fully  developed  export  organizations,  advanced  their 
sales  in  practically  every  country  on  the  globe.  Other 
manufacturers  followed  their  example  and  definitely 
adopted  the  poHcy  of  manufacturing  for  the  export  trade, 
looking  upon  foreign  markets  as  primary  markets  instead 
of  merely  as  dumping-grounds  for  surplus  products.     In- 


20      FOREIGN  TRADE  OF   UNITED   STATES 

creased  familiarity  with  the  needs  of  foreign  markets  and 
the  methods  necessary  to  the  successful  building  up  of  a 
permanent  and  valuable  trade  with  other  nations  was  an- 
other factor  in  the  success  of  our  manufactures  abroad. 

Iron  and  steel  manufactures  led  all  the  rest  in  the  long 
list  of  manufactured  commodities  exported;  refined  pe- 
troleum came  next,  with  agricultural  implements,  cars, 
carriages  and  automobiles,  leather  goods,  wood  manu- 
factures, and  copper  products  all  rolling  up  enormous 
totals. 

Agricultural  products  continued  to  pour  out  of  the 
country  in  immense  volume,  their  value  passing  the  bil- 
lion mark  for  the  first  time  in  1907.  Between  that  year 
and  1 9 14  the  increase  was  comparatively  slight.  The 
lower  relative  importance  of  agricultural  products  in  our 
export  trade  is  seen  by  noting  that  they  fell  from  61.6  per 
cent  of  the  total  exports  in  1900  to  47.8  per  cent  in  19 14. 
In  the  latter  year  manufactures  constituted  47.2  of  the 
total  exports. 

The  volume  of  the  leading  agricultural  export,  cotton, 
rose  from  3,100,000,000  pounds  valued  at  $241,000,000  in 
1900  to  4,760,000,000  pounds  valued  at  $610,475,000  in 
1914. 

The  exportation  of  foodstuffs  in  this,  as  in  former  peri- 
ods, shows  great  fluctuations.  The  increase  from  $92,- 
000,000  in  1870  to  $459,000,000  in  1880  reflected  the 
wonderful  development  of  our  Western  farms.  Then  this 
class  of  exports  fell  to  $356,000,000  in  1890,  and  again 
broke  all  records  in  1900,  when  foodstuffs  valued  at  over 
half  a  billion  dollars  went  out  of  the  country.  In  1910  we 
note  a  decrease,  with  recovery  in  1914.  Variations  in 
crops  and  prices  are  largely  responsible  for  these  extreme 
fluctuations.  When  we  have  a  bumper  crop  our  surplus 
is  naturally  larger  than  when  the  season  is  a  poor  one,  with 
partial  or  total  crop  failures  in  many  parts  of  the  coun- 
try.   Likewise,  when  the  prices  paid  for  agricultural  prod- 


18S0 


1890 


1900 


1910 


1914 


.1916 


1918 


GROWTH  OF  THE  EXPORT  TRADE  OF  THE  UNITED  STATES, 

1880-1918  21 


22      FOREIGN  TRADE  OF  UNITED  STATES 

ucts  are  high  the  fanners  are  encouraged  to  make  every 
effort  to  produce  and  market  big  crops,  while  when  prices 
are  low  and  transportation  costs  high  the  reverse  is  the 
case.  Because  the  exportation  of  foodstuffs  in  1914  was 
21  per  cent  less  than  in  1900,  we  are  not  justified  in  coming 
to  the  conclusion  that  we  are  approaching  the  point  at 
which  we  can  no  longer  provide  a  great  surplus  of  food- 
stuffs for  export.  The  astounding  increase  in  the  exporta- 
tion of  foodstuffs  since  1914  in  response  to  the  higher 
prices  and  greater  demand  caused  by  the  World  War 
shows  that  the  United  States  may  still  be  looked  upon  as 
the  granary  of  the  world.  The  difficulty  of  procuring 
farm  labor,  wasteful  and  expensive  methods  of  marketing 
farm  produce,  combined  with  other  factors,  resulted  in 
discouraging  increased  production  of  foodstuffs,  but  the 
general  rise  in  prices  in  191 5  and  later  put  the  farmers  on 
their  mettle  and  they  poured  forth  unprecedented  quanti- 
ties of  these  commodities. 

The  imports  of  the  period  between  1900  and  19 14  show 
changes  similar  to  those  found  in  the  exports.  The  great 
expansion  in  manufacturing  naturally  created  a  greater 
demand  for  raw  materials.  Those  which  it  was  found 
necessary  to  import  in  great  quantities  were  hides  and 
skins,  wool,  raw  silk,  the  textile  fibres  (flax,  hemp,  jute, 
sisal),  india-rubber  and  gutta-percha,  and  tin.  The  im- 
portation of  such  materials  comprised  33.4  per  cent  of  the 
total  imports  in  1914  as  against  32  per  cent  in  1900,  and 
12.7  per  cent  in  1870.  Finished  manufactures  occupied 
the  same  relative  position  in  1914  as  in  1900,  constituting 
24  per  cent  of  our  imports  in  both  years. 

Relatively  the  importation  of  foodstuffs  decreased  dur- 
ing the  period,  though  their  value  increased  from  $231,- 
000,000  in  1900  to  $476,000,000  in  1914.  As  late  as  1890 
foodstuffs  constituted  a  third  of  all  imports;  by  1914  they 
had  fallen  to  one-fourth  the  total.  The  importation  of 
foodstuffs  per  capita  changed  little;    even  as  far  back  as 


DEVELOPMENT  OF  FOREIGN  COMMERCE     23 

1870  we  imported  $4  per  capita;  in  191 4  the  per  capita 
importation  of  foodstuffs  was  $4.75.  The  increase  per 
capita  was  more  than  offset  by  the  rise  in  prices.  In  the 
period  between  1870  and  1900  the  population  doubled; 
that  is,  it  increased  100  per  cent.  In  the  same  period  the 
importation  of  foodstuffs  increased  only  54  per  cent. 

It  is  only  since  1900  that  the  importation  of  foodstuffs 
has  increased  out  of  proportion  to  the  growth  in  population. 


1880 


1890 


1900 


1910 


1914 


INCREASE  IN  UNITED  STATES  EXPORTS  OF  MANUFACTURES, 

1880-1914 
Showing  the  percentage  manufactures  fonned  of  all  exports  at  different  periods 


This  is  due  not  to  a  decrease  in  the  production  of  foodstuffs 
for  home  consumption,  but  to  an  increase  in  the  use  of  such 
tropical  and  semitropical  products  as  tea,  coffee,  cocoa, 
sugar,  fruits,  and  nuts.  For  instance,  our  consumption  of 
raw  sugar  rose  from  40  pounds  per  capita  in  1880  to  50 
pounds  in  1890,  and  to  59  pounds  in  1900,  and  89  pounds  in 
1914. 

Summary. — The  foreign  trade  of  the  United  States 
increased  from  $152,000  in  1810  to  $4,258,000,000  in  1914, 
or  about  twenty-eight  fold.  In  the  same  period  the  popu- 
lation increased  from  7,200,000  to  98,200,000,  or  about 
four teenf old.  Our  foreign  trade,  then,  has  increased  at 
twdce  as  great  a  ratio  as  our  population,  the  per  capita  in- 
crease being  from  $21  in  1810  to  $43  in  1914.  Between 
19 14  and  191 8,  under  the  stimulus  of  the  World  War,  our 
trade  attained  enormous  proportions,  but  since  many  con- 


24      FOREIGN  TRADE  OF   UNITED   STATES 


1.100 


1.000 


900 


800 


o 
o 

o  600 

z 
o 


^  500 


400 


300 


200 


100 


S 
3 


__  —  __ -M  —  _ 


INCREASE  IN  UNITED  STATES  EXPORTS  OF  MANUFACTURES, 

1880-1914 

Showing  the  increase  in  value  of  our  exports  of  manufactures,  expressed  in  milKons 

of  dollars 


ditions  of  that  trade  were  abnormal  the  returns  for  that 
period  do  not  afford  reliable  data  for  analysis. 

The  change  in  the  character  of  our  foreign  trade  is  quite 
as  important  as  the  increase  in  volume  and  value.    Great 


DEVELOPMENT  OF  FOREIGN  COMMERCE    25 

changes  have  taken  place,  the  most  striking  being  the 
remarkable  position  manufactured  wares  have  attained  in 
the  export  trade,  especially  since  1900.  The  increasing 
importance  of  such  raw  materials  as  rubber,  wool,  hides 
and  skins,  and  textile  fibres  in  our  imports  further  em- 
phasizes the  position  manufactures  occupy  in  our  trade 
relations  with  other  countries. 

While  we  are  still  a  great  agricultural  nation,  manu- 
facturing has  so  forged  ahead  that  since  1914  about  one- 
half  of  our  exports  has  been  manufactured  articles.  This 
change  is  of  the  utmost  importance,  for  it  has  created  new 
problems  in  regard  to  the  marketing  of  our  surplus  products 
in  foreign  countries;  it  has  brought  us  into  direct  ccnnperi- 
tion  with  the  other  great  manufacturmg  nations;  it  has 
given  us  a  new  interest  in  the  extension  of  our  trade  with 
the  less-developed  countries,  such  as  Chile,  Argentma, 
Brazil,  Russia,  Australia,  South  Africa,  and  Canada,  all 
countries  that  import  great  quanriries  of  manufactures 
and  export  foodstuffs  and  raw  materials;  it  has  niade  more 
highly  organized  and  more  aggressive  methods  in  foreign 
trade  essenrial  to  our  success;  it  has  made  our  position  in 
foreign  trade  one  of  fundamental  importance  to  every 
State  and  to  every  citizen. 

While  it  is  true  that  the  exportarion  of  manufactures  has 
increased  wonderfully  in  every  great  commercial  nation, 
in  no  case  has  the  progress  been  so  great  as  that  of  the 
United  States.  This  is  shown  by  the  following^  table, 
which  gives   the  exports  of  manufactures  for  different 


Country 

1892 

1912 

Increase 
in  millions 

Per  cent 
increase 

United  States 

United  Kingdom. .  .  . 
Germany 

$183.1 
827.0 
463.8 
362.6 
171. 9 

$1,020.4 

1,873-6 

1,430.1 

756.1 

359.8 

$    837-3 
1,046.6 

966.3 
397-5 
187.9 

457.3 
126.5 
208.3 
108.5 
109.9 

France 

Austria-Hungary.  .  . 

26      FOREIGN  TRADE  OF  UNITED   STATES 

countries  in  1892  and  in  191 2,  in  millions  of  dollars,  with 
the  per  cent  of  increase  for  the  period. 

The  rate  at  which  our  exportation  of  manufactures  in- 
creased is  far  ahead  of  that  of  any  of  the  other  large  manu- 
facturing nations.  In  actual  increase  the  United  King- 
dom led  all  nations,  with  Germany  second  and  the  United 
States  third. 

BIBLIOGRAPHY 
For  Chapters  II  and  V 

Baker,  Ray  Stannard.    Our  New  Prosperity.    New  York,  1900. 

Bates,  Charles  A.     American  Supremacy.    New  York,  1901. 

BoGART,  E.  L,  The  Economic  History  of  the  United  States.  New 
York,  191 2.     2d  ed. 

CoMAN,  Katherine.  The  industrial  History  of  the  United  States. 
New  York,  1900. 

CoNANT,  C.  A.     The  United  States  in  the  Orient.     Boston,  1900. 

CooLmcE,  A.  C.  The  United  States  as  a  World  Power.  New  York, 
1908. 

Depew,  Chauncey  M.  One  Hundred  Years  of  American  Commerce. 
New  York,  1895. 

Evans,  C.  H.  Domestic  Exports  from  the  United  States  to  All  Coun- 
tries, 1 789-1 883.     Washington,  1884. 

Farrand,  Max.  The  Development  of  the  United  States  from  Col- 
onies to  a  World  Power.     Boston,  1918. 

FuRNESS,  Sir  Christopher.  The  American  Invasion.  London, 
1902. 

Gannett,  H.     The  Building  of  a  Nation.    New  York,  1895. 

HoMANS,  I.  S.  An  Historical  and  Statistical  Account  of  the  Foreign 
Commerce  of  the  United  States,  1820-56.     New  York,  1857, 

KiTCHELL,  J.  G.  American  Supremacy;  Being  a  Compilation  of 
Facts  and  Statistics  Regarding  Foreign  Commerce.  New  York, 
1901. 

Knoop,  Douglas.  American  Business  Enterprise.  Manchester, 
1907. 

Latane,  John  H.     America  as  World  Power.     New  York,  1907. 

Laughlin,  J.  L.     Industrial  America.     New  York,  1906. 

McKenzie,  F.  a.     The  American  Invaders.     London,  1901. 

Moore,  J.  R.  H.  An  Industrial  History  of  the  American  People. 
New  York,  1913. 


DEVELOPMENT  OF  FOREIGN  COMMERCE    27 

Philadelphia  Commercial  Museum.     The  World's  Commerce  and 

American  Industries.     Philadelphia,  1903. 
Sparks,  Edwin  E.    National  Development,  1877-85.    New  York, 

1907. 
Thurston,  H.  W.    Economic  and  Industrial  History.     Chicago, 

1899. 
Tompkins,  D.  A.    American  Commerce;    Its  Expansion.     Char- 
lotte, N.  C,  1900. 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.    Commerce 

Reports.    Daily  Consular  and  Trade  Reports. 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.    Commerce. 

Monthly  Summary  of  Foreign  Commerce  of  the  United  States. 
U.    S.    Bureau   of   Foreign   and   Domestic    Commerce.    Ex- 
ports of  Domestic  Merchandise  from  the  United  States  by  Articles 

and  Countries  During  the  Years  Ending  June  30,  1 910-19. 

Same  for  years  191 2-16  and  for  years  1913-17. 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.    Foreign 

Commerce  and  the  TariJ",  1899-1915. 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.    Position 

of  the  United  States  in  World  Trade.     191 7. 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.    Statistical 

Abstract  of  the  United  States.     Annual. 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.     Trade  of 

the    United  States  with  the   World,    1914-15-     (Miscellaneous 

series  no.  38.) 
U.  S.  Imports  of  Merchandise  Into  the  United  States  by 

Articles  and  Countries  During  Years  Ending  June  30, 

1913-17.     1918. 
Vanderllp,    Frank   A.     The   American   Commercial   Invasion   of 

Europe.     New  York,  1902. 
Wright,    Carroll   D.     The   Industrial   Evolution   of  the    United 

States.    New  York,  1910. 


CHAPTER  III 
THE  WAR  TRADE  OF  THE  UNITED  STATES 

New  Grand  Totals  in  Both  Exports  and  Imports. — The 

first  effect  of  the  World  War  was  to  cause  a  reduction  in 
both  exports  and  imports,  due  to  dislocation  of  shipping 
routes,  to  the  withdrawal  of  ship  tonnage,  to  unsettled 
business  conditions,  and  to  the  general  turmoil  occasioned 
by  the  outbreak  of  the  war.  But  in  a  few  months  came  the 
unending  demand  of  the  belligerent  nations  for  war  ma- 
terials and  foodstuffs,  and  of  the  neutral  nations  for  food- 
stuffs and  other  commodities  which  they  had  formerly 
secured  from  the  belligerents. 

The  demand  rose  higher  and  higher  each  month  as  the 
war  progressed,  causing  our  foreign  trade  to  break  all 
records  in  volume  and  value,  especially  on  the  export 
side.  The  imports,  too,  expanded  greatly  after  191 5, 
though  their  expansion  was  far  less  than  that  of  the  ex- 
ports. 

The  following  table  gives  the  value  of  exports  and  im- 
ports for  the  fiscal  years  of  1914-18,  the  value  being  ex- 
pressed in  even  millions,  with  six  places  omitted: 


Year 


I914 

I915 
I916 

I917 
I918 


Exports 


$2,364 
2,768 

4.333 
6,290 
5,920 


Imports 


$1,894 
1,674 
2,198 
2,660 
2,946 


Analysis  of  Exports. — The  gain  in  value  of  the  exports 
is  seen  to  be  enormous,  the  totals  for  191 7  and  for  1918 
being  between  two  and  a  half  and  three  times  the  total  for 

28 


WAR   TRADE   OF   THE   UNITED   STATES     29 

1914,  the  last  pre-war  year.  The  decrease  in  exports  in 
1 91 8  as  compared  wdth  191 7  was  due  to  conditions  arising 
from  our  own  participation  in  the  war.  There  were  also 
great  quantities  of  war  materials  exported  by  the  govern- 
ment tliat  do  not  appear  in  statistics. 

Several  factors  are  to  be  considered  in  evaluating  this 
war  trade.  First,  the  totals  were  greatly  exaggerated  ow- 
ing to  the  constantly  rising  prices.  The  increase  in  the 
prices  of  the  leading  articles  of  export  in  1918  over  those 
for  1 9 14  ranged  from  40  per  cent  to  300  per  cent.  For  in- 
stance, the  price  of  wheat  increased  over  100  per  cent,  of 
steel  products  fully  70  per  cent,  of  raw  cotton  over  50  per 
cent,  of  packed  meats  about  50  per  cent.  The  effect  of 
higher  prices  in  our  import  totals  will  be  considered  in  some 
detail  later. 

Second,  the  trade  was  abnormal  in  character  as  well  as 
in  value.  While  the  gain  in  volume  of  some  articles  was 
tremendous,  other  articles  either  gained  little  or  actually 
fell  off.  For  instance,  raw  cotton  exported  fell  from  9,165,- 
000  bales  in  1914  to  8,426,000  bales  in  1915,  to  5,955,000 
bales  in  1916,  and  to  5,576,000  bales  in  1917,  though  the 
price  greatly  increased. 

Agricultural  implements  exported  in  19 14  were  valued  at 
$31,965,000.  This  fell  to  $10,304,000  in  1915;  with  partial 
recovery  and  increased  prices  the  total  in  191 7  reached 
only  $26,553,000.  Cash-registers  decreased  in  number 
from  47,882  in  1914  to  10,271  in  1917.  Art  works  fell 
from  $1,415,000  in  value  in  1914  to  $395,000  in  1917. 
Hops  is  another  agricultural  product  that  met  small  de- 
mand during  the  war,  the  export  falling  from  24,262,896 
pounds  in  1914  to  4,824,876  pounds  in  191 7. 

These  occasional  setbacks,  however,  dwindle  into  in- 
significance when  the  advances  in  most  lines  are  con- 
sidered, especially  in  those  articles  that  may  be  classed  as 
war  material.  The  part  such  commodities  played  in  our 
export  trade  in  manufactures  is  shown  by  the  following 


30      FOREIGN   TRADE   OF   UNITED   STATES 


table,  which  gives  the  totals  in  millions  of  dollars  of  exports 
in  specified  materials  for  the  four  war  years,  191 5-18,  and 
for  the  preceding  four-year  period. 


Article 


Explosives 

Chemicals 

Zinc  and  its  manufactures.  .  . 

Brass,  mostly  shells 

Firearms 

Metal- working  machinery.  .  .  , 

Wire 

Tin-plate 

Automobiles,  including  trucks 

Total  for  period 


Value  4-year  period 
IQIS-18 


>i,7i6 
662 

158 
622 
160 
229 
140 
106 
420 


^,2I3 


Value  4-year  period 
1911-14 


$  21 

4 
20 

13 

32 
42 
18 
97 


$352 


The  table  contains  only  a  few  of  the  articles  exported 
largely  if  not  entirely  for  war  purposes.  Great  quantities 
of  leather  manufactures  such  as  boots  and  shoes  and  har- 
ness and  saddles,  of  cotton  and  woollen  cloth  and  of  army 
uniforms,  implements  and  tools  of  every  variety,  and  a 
score  or  more  of  other  articles  were  added  to  the  war  store. 
In  addition  to  all  these  are  the  foodstuffs,  the  demand  for 
which  was  doubled  and  trebled  by  the  war. 

The  table  helps  to  explain  why  manufactures  exported 
in  the  four  years  of  the  war  aggregated  in  round  numbers 
$11,000,000,000,  being  largest  in  191 7,  when  they  aggre- 
gated $4,000,000,000,  or  nearly  as  much  as  the  total  ex- 
port of  manufactures  for  the  four-year  period  preceding  the 
war.  Foodstuffs  exported  in  the  war  period  amounted  to 
approximately  $5,000,000,000. 

The  largest  single  group  in  the  export  trade  was  iron  and 
steel  products,  fonning  about  one-fifth  of  the  total  exports. 
These  include  such  war  materials  as  barbed  wire,  firearms, 
steel  rails,  steel  sheets  and  plates,  steel  billets,  and  similar 
articles. 

Breadstuffs  is  the  next  great  item,  with  such  commodi- 


WAR   TRADE   OF   THE   UNITED    STATES     31 

ties  as  meat  and  dairy  products,  condensed  milk,  canned 
and  dried  fruits  and  vegetables  and  fish,  and  re-exports  of 
sugar,  coffee,  vegetable  oils,  and  cocoa  important  items. 
Wheat  exported  in  the  four-year  period,  including  flour 
reduced  to  terms  of  wheat,  aggregated  over  913,000,000 
])ushels. 

The  Exports  by  Continents  and  Countries. — The  direc- 
tion of  our  export  trade  shows  interesting  and  important 
changes.  While  European  countries  continued  to  take  the 
bulk  of  our  exports,  the  sales  to  other  countries  were  greatly 
enhanced.  They  are  of  special  interest  because  they  con- 
sisted more  largely  of  the  stable  commodities  of  peace. 
Sales  to  Europe  in  191 7  nearly  trebled  those  of  1914,  ris- 
ing from  $1,486,000,000  to  $4,324,000,000,  but  falling  con- 
siderably below  this  high  mark  in  1918.  Exports  to  Europe 
for  the  four  war  years  totalled  some  $13,000,000,000  as 
against  $6,616,000,000  for  the  preceding  four-year  period. 

The  exports  to  North  American  countries  show  the  next 
largest  increase,  expanding  from  $528,644,000  in  1914  to 
$1,163,750,000  in  the  banner  year  of  191 7.  Canada  was 
the  largest  factor  in  this  trade,  as  the  United  Kingdom  was 
in  the  European  trade. 

After  recovery  from  the  trade  depression  felt  throughout 
South  America  in  191 5,  our  exports  to  that  continent  rose 
satisfactorily,  so  that  in  191 7  we  sold  over  twice  as  much  to 
that  continent  as  in  1914- 

Exports  to  Asia  expanded  from  $113,425,000  in  1914  to 
$380,250,000  in  1917,  with  still  larger  figures  in  1918, 
Japan  taking  over  one-third  of  the  total.  Sales  to  African 
countries  nearly  doubled  in  the  same  period,  while  those 
to  Oceania  showed  a  normal  increase. 

Considering  the  different  nations  separately,  we  find  the 
United  Kmgdom  continued  to  be  our  best  customer  through- 
out the  war  period,  purchasing  from  us  merchandise  valued 
at  some  $6,500,000,000  in  the  four  years  as  against  $2,300,- 
000,000  in  the  preceding  four  years.     Commodities  sold 


32      FOREIGN  TRADE  OF  UNITED   STATES 

to  France  in  the  four  years  were  valued  at  $2,900,000,000 
as  against  $576,000,000  for  the  four  years  preceding  the 
war.  Italy  took  over  a  billion  dollars'  worth  of  merchandise 
during  the  war  as  against  $276,000,000  for  the  preceding 
four  years.  Of  non-European  countries,  Canada  was  by 
far  our  best  customer,  her  purchases  from  us  for  the  four 
years  aggregating  $2,300,000,000,  or  not  far  from  double 
those  of  the  four  years  preceding  the  war.  This  placed 
Canada  third  in  our  list  of  customers,  with  the  United  King- 
dom first  and  France  second.  Our  trade  with  Russia  was 
enormously  increased  in  191 6  and  191 7,  but  practically 
ceased  in  191 8.  Japan  proved  an  excellent  market  dur- 
ing the  war  period,  taking  a  total  of  $523,000,000  worth 
of  merchandise.  The  growth  of  commerce  between  the 
United  States  and  Latin  America  expanded  steadily  dur- 
ing the  war.    This  will  be  considered  later. 

Analysis  of  Imports. — With  the  greater  demand  for 
manufactured  products  for  export  came  the  need  of  larger 
quantities  of  raw  materials  for  use  in  our  industries. 
These,  with  tropical  food  products,  are  responsible  for  the 
expansion  of  our  imports.  By  articles  the  leading  imports 
of  the  war  period  were  sugar,  rubber,  wool,  raw  silk,  hides 
and  skins,  coffee,  copra,  chemicals,  tin,  and  fibres. 

While  the  increase  in  value  of  the  imports  was  large,  a 
comparison  of  quantities  shows  that  the  higher  prices  pre- 
vailing during  the  war  are  largely  responsible  for  the  greater 
totals.  For  example,  379,129,000  pounds  of  wool  were 
imported  in  1918  as  against  247,648,000  pounds  in  1914, 
the  quantity  increasing  60  per  cent,  while  the  average 
price  per  pound  increased  150  per  cent,  or  from  21  to  52 
cents.  The  imports  of  raw  silk  increased  from  28,594,000 
pounds  in  19 14  to  34,846,000  pounds  in  19 18,  and  the  price 
per  pound  from  $3.40  to  $5.30.  Imports  of  copper  ore 
jumped  from  112,271,000  pounds  in  1914  to  166,654,000 
pounds  in  19 18,  the  average  price  rising  from  12.1  cents  in 
1914  to  19.8  cents  in  1918. 


WAR   TRADE   OF  THE   UNITED   STATES    33 

Some  imports  which  rolled  up  large  totals  in  value  in  the 
later  years,  really  decreased  in  quantity,  notably  sugar 
and  hides  and  skins.  Of  sugar,  5,061,000,000  pounds  were 
imported  in  1914  and  only  4,898,000,000  pounds  in  1918, 
though  the  value  more  than  doubled.  The  value  of  the 
hides  and  skins  imported  in  1918  exceeded  that  of  19 14  by 
over  $11,000,000,  and  yet  the  quantity  fell  from  561,080,- 
000  poimds  to  432,516,000  pounds. 

A  few  imports  show  a  falling  off  in  price  in  the  period, 
as  in  the  case  of  rubber  and  coffee,  but  such  exceptions  are 
rare.  The  statistician  of  the  National  City  Bank  of  New 
York  computed  the  value  of  25  of  the  leading  imports  for 
use  m  manufacturing  in  the  year  191 7  at  the  prices  pre- 
vailing for  the  same  articles  in  1916,  1915,  and  1914?  and 
showed  that  while  the  25  articles  in  question  had  a  total 
value  in  the  imports  of  1917  of  $1,201,595,000,  an  equal 
quantity  of  the  respective  articles  imported  at  the  average 
price  in  1916  would  have  cost  but  $951,371,000;  in  1915, 
$891,981,000,  and  in  1914,  $903,008,000.  This  indicates 
the  necessity  of  making  a  liberal  deduction  in  trade  totals 
before  making  comparisons. 

The  Continents  and  Countries  from  Which  We  Bought. — 
Striking  changes  in  the  sources  of  our  imports  occurred 
during  the  war.  A  relatively  smaller  proportion  came 
from  European  countries  and  a  much  larger  proportion 
from  both  North  and  South  America.  European  imports 
fell  from  $895,602,000  in  1914  to  $411,000,000  in  1918, 
while  those  from  other  countries  rose  from  slightly  less 
than  $1,000,000,000  in  1914  to  $2,535,000,000  in  1918. 
Expressed  as  percentages  of  the  total,  less  than  14  per 
cent  of  all  imports  came  from  Europe  in  191 8  as  against 
over  47  per  cent  in  1914.  During  the  four-year  period  the 
value  of  European  imports  totalled  $2,253,000,000  as 
against  $3,376,000,000  in  the  preceding  four  years.  The 
shutting  off  of  trade  with  Germany  was  a  large  factor  in 
this  change,  while  the  concentration  of  the  United  King- 


34      FOREIGN  TRADE   OF  UNITED   STATES 

dom,  France,  Italy,  and  other  nations  upon  war  industries 
accounted  for  the  balance. 

Imports  from  North  American  countries  totalled  $2,749,- 
000,000  for  the  four-year  war  period  as  against  $1,428,- 
000,000  for  the  preceding  four  years;  those  from  South 
America  more  than  doubled  in  the  period  as  did  those  from 
Asia  and  Oceania,  while  the  purchases  from  Africa  increased 
even  more,  being  fourfold  as  large  in  191 8  as  in  19 14. 

Considering  not  continents  but  separate  countries,  it  is 
important  to  note  changes  in  the  relative  positions  of  the 
nations  in  our  import  trade.  The  appended  table  shows 
this  for  1 9 14  and  191 8,  in  millions  of  dollars. 


Country 

Imports  from — 
1914 

Imports  from — 
1918 

Canada 

$160.6 
107.3 
I3I-3 

45-1 
293.6 

25-7 
92.6 

39-3 
101.3 
141. 4 

$434-2 
284.9 
264.0 
195-6 
190.0 
141. 0 

140.6 
140.7 
II3-5 

75-6 

Taoan 

Cuba 

Argentina 

United  Kingdom 

Chile 

Mexico 

China 

Brazil 

France 

The  gain  in  the  import  trade  with  Canada  and  w^ith 
Latin  American  countries  is  clearly  brought  out  in  the 
table.  From  Canada  we  bought  wheat,  largely  for  re- 
export, copper  and  copper  manufactures,  wood-pulp  and 
pulp-wood,  flaxseed,  cattle,  lumber,  furs,  hides  and  skins, 
and  wood. 

Japan  more  than  doubled  her  sales  to  the  United  States, 
stepping  into  the  position  formerly  held  by  Germany  in 
our  import  trade.  Raw  silk  and  silk  manufactures,  tea, 
soya-bean  and  peanut  oil,  beans  and  lentils,  camphor,  hats 
and  hat  materials,  chinaware,  rice,  matting,  and  cotton 
manufactures  were  the  leading  articles,  the  single  item  of 
raw  silk  being  responsible  for  about  one-half  the  gain. 


WAR  TRADE   OF  THE  UNITED   STATES    35 

The  Latin  American  Trade. — From  Cuba  the  increase 
was  largely  due  to  the  higher  price  of  sugar.  Other  im- 
ports were  tobacco,  molasses,  copper  ore,  hides,  iron  ore, 
manganese  oxide,  and  fruits. 

The  trade  with  the  other  Latm  American  countries, 
which  include  all  the  South  American  republics.  Central 
America,  except  British  Honduras,  Mexico,  Cuba,  Haiti, 
Domingo,  and  the  French  West  Indies,  more  than  doubled 
on  the  import  side  and  nearly  trebled  on  the  export  side. 
Our  imports  from  these  countries,  which  aggregated  $469,- 
000,000  in  1 914,  rose  to  $1,000,000,000  in  round  numbers 
in  191 7,  a  record  maintained  in  191 8.  At  the  same  time 
the  exports  from  the  United  States  to  Latin  America  ex- 
panded from  $282,000,000  to  $581,900,000  in  1917  and  to 
$725,800,000  in  1918.  Expressed  in  percentages  of  our 
total  trade,  we  obtained  36  per  cent  in  191 7  and  33  per  cent 
in  1 918  of  our  imports  from  Latin  America  as  against  24.7 
per  cent  in  1914,  and  we  sold  12.24  per  cent  of  our  exports 
to  those  countries  in  1918,  or  slightly  more  than  the  share 

in  1914. 

Our  total  trade  with  Latin  America,  considering  unports 
and  exports  together,  was  about  one  and  three-quarters 
billion  dollars  in  1918.  The  trade  of  these  republics  with 
the  world  was  about  $3,000,000,000  all  told  in  1918,  which 
indicates  that  about  60  per  cent  of  this  total  was  with  the 
United  States.  Until  trade  channels  were  changed  by  the 
war,  many  Larin  American  products  went  first  to  some 
European  country  and  then  were  purchased  by  us,  while 
the  tendency  was  for  those  countries  to  buy  the  manufac- 
tured products  they  required  from  the  United  Kingdom, 
Germany,  or  France.  During  the  war  the  indirect  trade 
between  the  United  States  and  Latin  America  was  stopped, 
and  more  and  more  of  our  products  found  a  market  there. 
While  the  hold  that  Germany  had  upon  Latin  American 
trade  has  been  greatly  exaggerated,  the  shutting  off  of 
that  trade  has,  nevertheless,  had  a  decided  effect  in  increas- 
ing our  trade. 


36      FOREIGN  TRADE  OF  UNITED   STATES 

The  larger  totals  of  our  trade  with  our  American  neigh- 
bors are  not  so  important  as  are  the  closer  trade  relations 
that  have  been  established.  Many  products  from  the 
United  States  have  been  sold  to  Argentina,  Chile,  Brazil, 
and  the  other  republics  which  had  never  found  a  market 
there  before.  This  promises  better  trade  in  normal  times. 
Clearer  understanding  of  the  needs  and  conditions  pre- 
vailing in  South  America  has  been  gained  by  these  transac- 
tions, and  this  opens  the  way  to  closer  trade  relations  and 
to  enlarged  sales.  From  Latin  America  we  procure  essen- 
tial raw  materials;  in  Latin  America  we  find  a  market  for 
surplus  manufactures  in  which  there  is  keen  competitive 
selling.  Hence  our  interest  in  trade  with  that  part  of  the 
world.  Conversely,  Latin  America  finds  in  the  United 
States  the  best  customer  for  those  raw  materials  produced 
in  superabundance,  and  is  able  to  obtain  from  the  United 
States  the  manufactured  articles  not  produced  there. 
Since  the  United  States  has  become  the  great  creditor  na- 
tion of  the  world,  with  the  means  of  making  further  foreign 
investments  where  safety  and  fair  returns  are  assured,  it 
is  to  us  that  the  undeveloped  countries  of  the  world  such 
as  the  republics  in  question  are  naturally  looking  for  assis- 
tance in  developing  the  rich  natural  resources  they  possess. 
It  is  for  these  reasons,  among  others,  that  a  largely  increased 
trade  with  Latin  America  is  predicted. 

The  Re-export  Trade. — The  United  States  has  not  made 
the  same  effort  to  develop  a  trade  in  the  re-export  of  for- 
eign commodities  as  have  the  other  leading  commercial 
nations.  Our  pre-war  exports  of  foreign  merchandise 
amounted  to  about  $35,000,000  annually.  This  increased 
to  $62,884,000  in  191 7  and  to  $81,059,000  in  1918.  In 
contrast  to  this  is  the  re-export  trade  of  the  United  King- 
dom, amounting  normally  to  about  $500,000,000  annually; 
of  France,  ranging  from  $350,000,000  to  $400,000,000,  and 
of  Germany's  re-exports,  totalling  from  $100,000,000  to 
$190,000,000  before  the  war. 


WAR   TRADE   OF  THE   UNITED   STATES    37 

Aside  from  the  profit  made  by  those  directly  concerned 
in  the  re-export  trade,  there  is  the  further  advantage  re- 
sultant from  the  natural  reciprocal  movement  in  trade. 
The  countries  which  find  a  ready  market  for  their  wares 
in  the  United  States  quite  naturally  look  to  us  for  those 
conamodities  which  they  import. 

The  advance  in  our  re-export  trade  between  1914  and 
1919  was  largely  in  Latin  American  products,  many  of 
which  were  diverted  to  the  United  States  because  of  the 
lack  of  direct  shipping  facilities  to  British  or  Continental 
ports.  The  statistics  for  re-export  trade  do  not  include 
goods  from  Porto  Rico,  Hawaii,  or  Alaska,  but  do  include 
products  from  the  Philippines,  which  are  not  a  customs 
district  of  the  United  States.  Neither  do  they  include  the 
exports  of  merchandise  made  from  imported  raw  materials, 
which  rose  from  §75^000,000  in  1914  to  $250,000,000  in 
1 91 6.  Such  goods  consisted  largely  of  the  manufactures  of 
leather,  rubber,  silk,  and  wool. 

The  leading  items  in  our  re-export  trade  in  191 7  with 
their  value  in  millions  of  dollars  were  as  follows: 


India-rubber  and  gutta-percha 

Coffee 

Chemicals,  drugs,  and  dyes 

Hides  and  skins,  other  than  furs.  .  . 
Fibres,  as  flax,  hemp,  jute,  and  sisal . 

Fruits  and  nuts 

Meat  and  dairy  products 


$7,791,000 
6,880,000 
6,497,000 
5,244,000 
4,999,000 
3,478,000 
1,611,000 


Other  large  items  of  foreign  merchandise  regularly  re- 
exported in  large  quantities  are  rice,  cocoa,  raw  and  manu- 
factured cotton,  fish  and  shell-fish,  iron  and  steel  and  their 
manufactures,  vegetable  oils,  raw  silk,  spices,  sugar, 
tobacco,  wood  and  its  manufactures,  wool,  and  art  works. 

A  recent  article  in  Commercial  America*  thiis  describes 
our  re-export  trade: 

*  Commercial  America,  June,  191 5,  p.  25. 


SS      FOREIGN   TRADE  OF   UNITED   STATES 

Practically  tlie  entire  world  is  drawn  upon  for  the  many  lines  of 
foreign  merchandise  that  are  shipped  from  the  United  States. 
Horses  are  imported  chiefly  from  Mexico  and  Canada,  and  ex- 
ported not  only  to  those  countries,  but  also  to  various  countries 
in  Europe.  About  18,000,000  pounds  of  foreign  rice  is  exported; 
it  is  obtained  chiefly  from  the  Netherlands,  China,  and  Hongkong. 
The  United  States  exports  annually  about  10,000,000  pounds  of 
coft'ee,  obtained  in  most  part  from  South  and  Central  American 
countries.  Henequen,  which  is  exported  from  the  United  States 
chiefly  to  Canada,  Belgium,  and  other  European  countries,  is 
brought  mostly  from  Mexico.  The  india-rubber  which  is  exported 
from  this  country  comes  chiefly  from  Brazil  and  the  British  West 
Indies,  and  is  exported  largely  to  Canada.  The  foreign  tobacco 
which  leaves  the  country,  chiefly  consigned  to  the  Netherlands  and 
Canada,  is  produced  principally  in  Cuba,  Turkey,  and  the  Dutch 
East  Indies.  The  one  and  a  half  million  pounds  of  block  tin  which 
are  exported  to  Canada  represents  less  than  iK  per  cent  of  the 
total  imports  of  that  article. 

Trade  of  19 19. — Our  trade  in  191 9  was  the  largest,  as 
measured  by  dollars,  in  our  history.  The  exports  for  the 
fiscal  year  totalled  $7,225,000,000,  as  against  $5,920,- 
000,000  in  1918.  The  imports  aggregated  $3,096,000,000, 
as  against  $2,946,000,000  in  1918.  The  figures  for  the  cal- 
endar year  of  19 19  are  still  larger,  bringing  the  exports  up 
to  $8,000,000,000,  in  round  numbers,  and  the  imports  to 
$4,000,000,000.  That  excessively  high  prices  are  largely 
responsible  for  the  enormous  totals,  overtopping  those  of 
1 91 8  or  of  any  previous  year,  must  be  kept  in  mind,  but 
the  fact  remains  that  the  volume  of  both  exports  and  im- 
ports was  huge.  In  this  trade  Europe  was  by  far  the  largest 
factor. 

On  the  face  of  it,  this  is  highly  satisfactory,  but  there 
are  vital  factors  to  be  considered  and  pivotal  problems  to 
be  solved,  if  our  trade  pre-eminence  is  to  be  permanent. 

First,  there  is  the  question  of  prices.  During  1919,  as 
throughout  the  war  period,  exporters  were  able  to  obtain 
almost  any  price  they  chose  to  place  upon  their  goods, 
provided  they  could  supply  the  insistent  demand  for  our 


WAR   TRADE   OF   THE   UNITED   STATES    39 

commodities.  The  United  States  was  the  one  country 
where  the  manufactures,  the  raw  materials,  the  foodstuffs, 
so  sadly  needed  by  the  war-torn  countries  of  the  world, 
could  be  obtained.  Hence,  these  were  purchased  in  ab- 
nonnal  quantities  at  abnormal  prices.  With  the  restora- 
tion of  the  industrial  life  of  Europe,  world-wide  competi- 
tion is  being  restored.  American  products  are  again  com- 
ing into  the  position  of  having  to  sell  on  their  merits  at  the 
same  prices  as  asked  elsewhere.  If  the  competing  coun- 
tries are  able  to  keep  down  the  cost  of  production  and  un- 
dersell us,  they  may  be  depended  upon  to  do  so. 

The  pessimistic  view  is  that  this  can  be  done  because 
labor  costs  have  increased  so  greatly  in  the  United  States. 
It  is  doubtful,  however,  if  the  European  countries  will 
have  much  the  advantage  of  us  in  this  respect.  In  January, 
1920,  reports  of  wage  scales  in  the  leading  industries  of  the 
United  Kingdom  revealed  an  increase  of  wages  over  those 
antedating  the  war  of  from  100  per  cent  to  300  per  cent, 
with  an  upw^ard  tendency  in  every  branch  of  industry. 

With  large-scale  production  and  improved  equipment 
and  other  capital  investments  already  paid  for  out  of  the 
profits  of  the  war  period,  the  manufacturers  of  the  United 
States  should  be  in  a  position  to  compete  in  both  quality 
and  price  with  those  of  any  other  nation. 

A  question  that  cannot  be  solved  by  the  individual  manu- 
facturer is  that  relating  to  the  huge  balance  of  trade  in  our 
favor.  In  the  five-year  period  from  i9i5toi9i9,  inclusive, 
the  trade  balances  in  favor  of  the  United  States  aggregated 
over  $14,000,000,000.  In  the  three  fiscal  years  of  191 7, 
1 91 8,  and  1919  the  exports  exceeded  the  imports  by  ap- 
proximately $9,000,000,000.  These  balances  were  liqui- 
dated before  our  entrance  into  the  war  by  the  return  of 
American  securides  held  abroad,  by  private  loans  made  in 
America,  and  by  the  exportation  to  us,  from  the  countries 
having  adverse  trade  balances,  of  over  $1,200,000,000  in 
gold. 


40      FOREIGN  TRADE  OF  UNITED   STATES 

In  the  last  three  years  of  the  period  the  merchandise 
balance  due  the  United  States  was  met  by  means  of  loans 
made  by  the  goverimient  of  the  United  States  to  the  Allied 
nations,  aggregating  $10,000,000,000  in  round  numbers. 
In  1 919  alone  our  loans  to  foreign  countries  exceeded 
$1,750,000,000.  After  the  making  of  such  loans  was  dis- 
continued on  the  part  of  our  government,  private  loans  and 
credits  were  extended. 

In  this  way  the  countries  of  Europe  were  enabled  to 
buy  from  us  vastly  greater  quantities  of  goods  than  they 
sold  to  us.  Hence,  we  piled  up  an  enormous  balance, 
designated  as  a  favorable  one. 

The  Outlook  for  Future  Trade. — That  the  continuation 
of  such  a  condition  is  neither  possible  nor  desirable,  except 
for  a  very  limited  period,  is  evident.  Europe  is  already 
deeply  in  our  debt;  the  piling  up  of  greater  debtor  balances 
can  be  only  a  handicap  to  her  future  prosperity.  It  is 
generally  conceded  that  European  purchases  from  us  will 
diminish  as  soon  as  normal  industrial  conditions  have  been 
restored.  The  unfavorable  condition  of  exchange,  which 
makes  goods  purchased  in  the  United  States  still  more  ex- 
pensive to  European  customers,  is  a  factor  that  tends  to 
bring  about  a  balance  in  the  trade  relations  between  the 
nations  involved. 

It  is  plain,  then,  that  our  exports  cannot  continue  to  be 
double  our  imports  in  value.  The  nations  buying  from  us 
must  pay  in  gold,  in  goods,  in  services,  or  in  securities. 
The  payment  of  enormous  trade  balances  in  gold  is  impossi- 
ble, as  shown  in  the  chapters  on  foreign  exchange  and  on 
the  balance  of  trade.  There  is  not  enough  gold  in  Europe 
to  pay  such  balances  as  prevailed  in  19 18  and  19 19  for  a 
period  of  years.  This  is  the  reason  for  the  embargo  on  the 
exportation  of  gold  that  has  been  laid  by  many  countries. 

If  we  are  to  sell  to  Europe  and  elsewhere  as  heavily  as 
in  the  past,  we  must  adopt  one  or  more  of  the  following 
measures : 


WAR   TRADE  OF   THE   UNITED   STATES    41 

1.  Take  a  larger  volume  of  European  exports,  so  that 
our  imports  from  Europe  will  more  nearly  balance  our  ex- 
ports to  Europe. 

2.  Invest  freely  in  foreign  securities,  either  through 
government  loans  or  privately. 

3.  Make  long-term  credit  arrangements  with  European 
and  other  customers,  so  as  to  tide  over  the  reconstruction 
period. 

4.  Roll  up  tourist  expenditures  in  Europe,  as  well  as 
other  bills  for  services,  such  as  bankers'  commissions, 
shipping  in  foreign  bottoms,  etc.  Such  items  before  the  war 
offset  a  goodly  percentage  of  our  exports. 

In  general,  then,  neither  the  United  States  nor  any  other 
nation  can  hope  to  have  an  unduly  large  share  of  the  gold 
in  the  world,  an  unwieldy  excess  of  sales  over  purchases,  an 
excessive  amount  of  securities  and  other  evidences  of  debt 
either  from  other  governments  or  from  individuals  of  other 
nations,  and  a  preponderance  in  shipping  and  financial 
transactions. 

International  trade  means  exchange  between  nations. 
If  we  wish  to  sell  more  than  we  buy  abroad,  we  must  de- 
cide what  we  are  willing  to  take  for  our  surplus  exports. 
While  foreign  securities  seem  to  be  the  best  answer  during 
the  period  of  reconstruction  following  the  war,  there  is  a 
limit  even  to  this  method  of  offsetting  our  trade  balance. 

It  has  been  predicted  in  not  a  few  quarters  that  before 
many  years  the  United  States  will  fall  into  the  position  so 
long  occupied  by  the  United  Kingdom,  in  which  its  exports 
fall  short  of  its  imports,  the  excess  of  imports  being  offset 
by  interest  received  on  securities  held  abroad  and  by  other 
credits  arising  from  international  transactions.  This  would 
make  its  credits  in  some  items  offset  its  debits  in  other  items, 
a  condition  that  must  prevail  in  all  but  abnormal  periods. 


CHAPTER  IV 

EXPORTS  OF  THE  UNITED  STATES— ARTICLES  AND 
DESTINATION— TRADE  OPPORTUNITIES 

Nature  of  Our  Exports. — In  its  wealth  of  natural  resources 
the  United  States  is  the  most  richly  endowed  country  in 
the  world.  With  great  productivity  and  comparatively 
low  density  of  population,  it  has  a  large  surplus  of  food- 
stuffs and  raw  materials  for  export.  Since  it  has  become 
the  leading  manufacturing  country  in  the  world,  the  ex- 
ports of  manufactures,  as  previously  shown,  have  become 
of  tremendous  importance.  While  we  find  a  wide  variety 
of  exports,  especially  among  manufactures,  a  study  of  the 
statistics  compiled  by  the  Bureau  of  Foreign  and  Domestic 
Commerce  reveals  the  fact  that  a  comparatively  few  com- 
modities make  up  the  greater  part  of  our  immense  export 
trade.  These  articles  are,  in  the  order  of  importance  as 
expressed  in  value,  cotton,  iron  and  steel  manufactures, 
meat  and  meat  products,  wheat  and  corn  (including  flour), 
refined  and  crude  petroleum,  copper  manufactures,  wood 
manufactures,  and  leather  manufactures.  We  find  these 
eight  classes  of  commodities  repeated  time  and  again  as 
our  leading  exports  to  widely  scattered  countries,  differing 
only  in  the  proportion  which  they  bear  to  the  total. 

The  following  table  gives  the  average  value  of  our  eight 
leading  exports  for  the  five-year  period  embraced  between 
igio  and  1914: 


Cotton 

Iron  and  steel  manufactures. 

Meat  and  meat  products 

Wheat,  wheat-flour,  and  corn. 
Refined  and  crude  petroleum . 

Copper  manufactures 

Wood  manufactures 

Leather  manufactures 


Exports  in  millions 
of  dollars 


I55O 
247 
144 

120 
118 

95 

57 


42 


EXPORTS   OF   THE   UNITED   STATES        43 

Cotton. — The  place  occupied  by  cotton  in  both  our 
domestic  and  foreign  commerce  is  of  paramount  importance. 
Next  to  food,  clothing  is  the  greatest  need  of  mankind,  and 
it  is  cotton  that,  broadly  speaking,  clothes  the  world.  In 
comparison  with  cotton,  wool,  silk,  and  all  other  textiles 
occupy  a  minor  position.  More  than  twice  as  much  cotton 
is  used  as  w^ool  and  all  other  textiles.  The  use  of  this 
commodity  has  increased  fortyfold  in  the  past  century, 
while  wool  has  increased  only  fivefold  and  flax  tw^ofold. 
As  the  processes  of  manufacturing  have  been  improved, 
cotton  fabrics  and  knit  goods  have  become  cheaper  and 
more  attractive,  and  thus  their  use  has  been  greatly  en- 
larged. Cotton  manufacturing  has  become  one  of  the  lead- 
ing industries  of  the  United  States;  it  has  long  been  of  the 
first  importance  in  the  United  Kingdom,  which  annually 
looks  to  this  country  for  miUions  of  pounds  of  cotton  to 
supply  her  mills  and  factories.  Germany  and  France  and 
other  manufacturing  nations  have  likewise  depended  upon 
us  for  great  quantities  of  raw  cotton,  the  manufacture  of 
which  affords  employment  to  thousands  of  workers.  A 
complete  failure  of  our  cotton-crop  for  even  one  year 
would  cause  industrial  paralysis  and  great  distress  both  at 
home  and  abroad.  The  importance  of  cotton  as  a  world 
commodity  is  indicated  by  the  following  table,  which  gives 
the  production,  in  milHons  of  bales  of  500  pounds  each,  of 
the  leading  countries  for  stated  years. 


Countries 

United  States 

India 

Egypt 

Brazil  and  all  others 


1914-15 


14.76 

3-33 
1 .20 

•24 


1913-14 


14.49 
4-59 
1-43 

•38 


1912-13 


13-94 
346 
1. 41 

•37 


1911-12 


15-68 

3.10 

1-39 

•34 


1910-11 


11.80 

3-23 
1. 41 

.40 


For  the  five-year  period  just  considered,  the  United  States 
supphed  three-fourths  of  the  cotton  production  of  the  w^orld. 
It  is  interesting  to  note  that  while  our  exportation  of  cotton 


44      FOREIGN   TRADE  OF  UNITED   STATES 

steadily  increased  from  the  Civil  War  up  to  the  first  year 
of  the  World  War,  or  until  191 5,  approximately  two- 
thirds  of  the  crop  was  regularly  exported  each  year.  The 
increased  exportation  nearly  kept  up,  until  1915,  with  the 
increased  production,  leaving  one- third  of  the  crop  for  use 
at  home.  Our  home  consumption  now  exceeds  6,000,000 
bales  annually,  which  equals  the  entire  consumption  of  the 
continent  of  Europe,  and  is  one-fourth  greater  than  that 
of  the  United  Kingdom,  which  for  years  led  the  world  in 
the  consumption  of  raw  cotton.  In  1867,  1,401,000 
bales  were  exported;  twenty  years  later  the  number  had 
increased  to  4,301,000  bales;  while  in  1897  the  total  reached 
6,124,000  bales. 
The  following  table  gives  recent  statistics: 


Year 


1910 
I9II 
1912 

I913 
I914 

I915 
I916 
I917 
1918 


Production 
500-Ib.  bales 


10,001,000 
10,608,000 
15,693,000 
13,703,000 
14,156,000 
16,135,000 
11,192,000 
11,450,000 
11,302,000 


Export 
500-lb.  bales 


6,492,000 
8,026,000 
11,081,000 
9,199,000 
9,256,000 
8,931,000 
6,406,000 
5,964,000 
4,587,000 


Per  cent 
exported 


64.9 
69.1 
70.6 
67.1 
65.5 

55-3 
57-2 
52.1 
40.6 


Since  1914  we  have  retained  a  larger  percentage  of  the 
crop  for  manufacturing  in  our  own  mills.  Hence,  our 
exports  of  manufactured  cotton  increased  from  $51,467,- 
000  in  1914  to  $136,300,000  in  191 7,  the  increase  being 
in  quantity  as  well  as  in  value,  though  the  higher  prices 
helped  to  make  the  difference.  Our  consumption  of  raw 
cotton  in  1918  was  7,555,000  bales. 

In  the  years  1 910-14  the  value  of  our  raw  cotton  ex- 
ports averaged  $550,000,000.  It  has  been  shown  that  our 
pre-war  favorable  balance  of  trade  was  due  to  the  quantity 
of  cotton  sold  each  year  to  the  merchants  and  manufacturers 


EXPORTS  OF  THE  UNITED   STATES        45 

of  foreign  countries.  Our  cotton  exports  regularly  3delded 
sufficient  returns  to  more  than  offset  our  purchases  of  sugar, 
coffee,  tea,  cocoa,  spices,  and  tropical  fruits.  Stated  in 
another  way,  our  cotton  exports  may  be  said  to  have  offset 
before  the  war  the  total  charges  against  us  for  interest  on 
American  securities  held  abroad,  for  our  tourists'  expenses, 
our  freight  charges  due  foreigners,  and  the  money  sent 
abroad  by  immigrants  living  in  this  country.  It  is  cotton 
that  keeps  our  agricultural  exports  in  the  lead  and  that 
insures  the  United  States  continued  supremacy  as  a  source 
of  raw  materials. 

That  a  steady  demand  for  raw  cotton  from  the  United 
States  win  continue  for  years  is  practically  an  assured  fact. 
Not  only  the  United  Kingdom,  Germany,  France,  and  other 
European  countries,  but  also  Japan  and  even  China  must 
continue  to  look  to  America  for  the  major  supply  of  raw 
cotton  for  their  mills.  However,  with  the  rapid  expan- 
sion of  our  own  cotton-manufacturing  industry,  we  may 
expect  to  see  a  smaller  percentage  of  our  cotton-crop  shipped 
abroad,  and  our  importation  of  finished  cotton  decrease. 
In  other  words,  we  will  discontinue  in  a  measure  the  cus- 
tom of  shipping  our  raw  cotton  to  Europe  and  buying  back 
the  finished  product  made  from  that  cotton. 

Iron  and  Steel  Manufactures. — Iron  and  steel  manu- 
factures have  long  held  the  foremost  place  in  our  manu- 
factured exports.  This  was  won  by  superiority  of  the  prod- 
uct, promptness  in  the  execution  of  orders,  adaptation  to 
the  demands  of  the  market,  and  a  thorough  and  consistent 
sales  campaign,  carried  on,  for  the  most  part,  by  corpora- 
tions having  an  unlimited  supply  of  capital.  The  articles 
classed  as  iron  and  steel  manufactures  include  iron  and  steel 
rails,  structural  iron  and  steel  for  bridges  and  buildings, 
locomotives  and  other  railroad  equipment,  steam  and  gas 
engines,  boilers,  gas,  mill,  mining,  and  oil-well  equipment, 
steel  wire  for  fencing  and  other  purposes,  steel  cables  and 
chains,  ship-plates  and  anchors,  tools  and  tool  steel,  office 


46      FOREIGN  TRADE  OF  UNITED   STATES 

safes  and  other  steel  office  equipment,  and  machinery  of 
every  description. 

The  exports  of  this  class  of  manufactures  averaged 
$247,000,000  in  the  five-year  period  ending  June  30,  19 14. 
The  demand  for  war  materials,  coupled  with  higher  prices, 
caused  the  value  of  such  exports  to  shoot  up  to  $1,133,746,- 
000  in  191 7,  with  only  a  slight  falling  off  in  19 18.  The 
after-war  demand  for  structural  material  and  other  iron 
and  steel  manufactures  kept  the  value  of  this  class  of  ex- 
ports well  over  the  billion-dollar  mark  in  19 19. 

The  expansion  of  our  manufacturing  facilities  during  the 
war  placed  us  in  a  position  to  meet  any  future  market 
demands  for  this  as  for  other  class  of  manufactures.  More- 
over, the  fact  that  we  supplied  these  and  other  manufac- 
tures to  markets  that  had  formerly  been  supplied  by  Europe 
has  created  new  and  valuable  trade  relations  which  presage 
future  expansion. 

Meat  and  Meat  Products. — Meat  and  meat  products 
are  still  a  much  more  important  export  than  is  generally 
realized.  The  fact  that  few  cattle  are  now  exported  on  the 
hoof,  that  method  having  been  almost  entirely  displaced 
by  the  extensive  use  of  refrigeration  in  the  meat-packing 
industry,  has  led  to  a  rather  wide-spread  belief  that  our 
exports  of  meats  have  practically  ceased.  As  a  matter  of 
fact,  despite  our  increase  in  population,  these  exports 
averaged  in  the  five-year  period  between  1910  and  19 14 
nearly  the  same  as  those  of  the  period  1895-99,  though  they 
were  not  as  heavy  as  those  of  the  intervening  years.  The 
value  of  the  exports  of  meat  and  meat  products  for  five- 
year  periods  is  shown  below: 


Period 

Exports  in  milHoos 
of  dollars 

i8q^— QO 

$142 
181 

183 
144 

^^70   77 

1900—04    

1905-09....  , 

I910— 14        

EXPORTS    OF   THE   UNITED    STATES       47 

Statistics  and  estimates  given  out  by  the  Department  of 
Agriculture  show  that  the  number  of  cattle  increased  from 
43,902,414  in  1900  to  58,329,000  in  1915,  which  is  a  gain 
of  nearly  33  per  cent,  or  practically  the  same  gain  as  in 
our  population.  The  highest  number  of  cattle  recorded 
was  72,533,996  in  1907.  Swine  increased  from  37,079,000 
in  1900  to  68,047,000  in  1916,  or  85  per  cent.  The  increase 
in  the  number  of  sheep  in  the  United  States  has  not  kept 
pace  with  the  growth  in  population.  The  number  of  sheep 
in  1900  is  given  as  41,883,000;  in  191 5  they  numbered  49,- 
956,000,  but  this  is  far  below  the  number  for  the  year  1903, 
which  was  estimated  at  63,964,000.  There  is  a  fluctuation 
in  the  number  of  farm  animals  from  year  to  year,  occasioned 
by  an  abundance  or  by  a  lack  of  feed,  by  variations  in 
prices,  and  by  many  other  conditions.  The  fact  remains 
that  our  meat  exports  promise  to  be  of  importance  for 
many  years  to  come. 

The  war  trade  in  meat  and  its  products  showed  an  im- 
mense gain,  reflecting  higher  prices  and  greater  demand. 
The  value  of  such  exports  during  the  period  of  the  war 
is  shown  in  the  following  table: 


Fiscal  year 

Exports  in  millions  of  dollars 

IQI^ 

$206 
267 

354 
594 

IQI6         

IQI7      

•^7^/ 

IQI8 

Average  

$355 

Still  larger  exports  were  recorded  in  1919.  The  higher 
standard  of  li\ing  throughout  the  world  has  had  its  effect 
in  maintaining  the  demand  for  meat  and  meat  products. 
Thus  a  market  for  any  surplus  we  may  produce  seems 
assured. 

Wheat. — While  we  unfailingly  have  a  great  quantity  of 
v.heat  for  export,  the  amount  marketed  abroad  each  year 


48      FOREIGN  TRADE   OF  UNITED   STATES 

shows  great  fluctuations,  due  to  changing  crop  conditions, 
difference  in  prices,  and  in  the  international  demand.  The 
following  table  shows  the  production  of  wheat,  the  exports, 
and  the  percentage  of  the  crop  exported  each  year  for  the 
period  between  1906  and  19 18,  inclusive.  The  figures  are 
for  millions  of  bushels  and  include  flour. 


Year 


1906 
1907 
1908 
1909 
1910 
1911 
I912 

I913 
I914 

I915 
1916 
1917 
1918 


Production 


735 
634 
664 

737 
635 
621 

730 

763 
891 
1,025 
636 
636 
917 


ExportatioQ 


146 
163 
114 

87 
69 

79 
142 

145 
332 

243 
203 

133 

287 


Percentage 
exported 


19.9 
23.8 
17. 1 

II. 8 
10.9 
12.8 

19.5 
19,0 

37-3 
237 
319 
21.05 

31.3 


There  is  a  gratifying  increase  during  the  thirteen  years, 
especially  on  the  side  of  production.  The  average  for  the 
first  half  of  the  period  is  about  671,000,000  bushels;  for 
the  last  or  seven-year  period  the  average  is  800,000,000 
bushels. 

The  1 919  wheat-crop  was  slightly  larger  than  that  of 
191 8.  It  is  to  be  noted  that  in  the  table  of  production  and 
exportation  the  exports  of  wheat  for  each  year  are  placed 
with  the  crop  of  that  year,  although  such  exports  actually 
took  place  after  the  close  of  the  fiscal  year.  For  instance, 
the  132,000,000  bushels  of  wheat  exported  from  the  191 7 
crop  were  not  sent  out  of  the  country  until  the  following 
fiscal  year. 

While  the  table  shows  that  the  United  States  is  increas- 
ing the  production  of  wheat  to  meet  the  demand,  it  must 


EXPORTS   OF  THE  UNITED   STATES        49 


Expozrtatioix-— -—_ >  • 

ANNUAL  PRODUCTION  AND   EXPORTATION  OF  WHEAT  FOR   THE 
UNITED   STATES,    1899-1916 


be  recognized  that  the  continuance  of  this  satisfactory 
condition  must  depend  upon  an  adequate  supply  of  farm 
labor  at  fair  wages  being  available,  and  upon  the  price  of 
wheat  remaining  high  enough  to  encourage  production. 


50       FOREIGN   TRADE   OF   UNITED    STATES 


1891.1895 


1896-1900 


1901-1906 


1907-1911 


1912-1916 


WHEAT  CONSUMPTION  PER  CAPITA  IN  THE  UNITED  STATES 

Five-year  averages,  1891-1916 


Petroleum,  Copper,  Wood,  and  Leather  Manufactures. — 

Of  the  other  exports  enumerated,  refined  and  crude  pe- 
troleum, controlled  and  exported  by  a  few  corporations, 
have  increased  in  value  because  of  the  wider  use  for  these 
products  occasioned  by  the  improvements  in  the  internal 
combustion-engine  and  by  the  most  thoroughgoing  selling 
organization  in  existence.  Copper,  wood,  and  leather 
manufactures  exported  reflect  our  skill  in  large-scale  pro- 
duction, whereby  the  best  modern  machinery  is  made  use 
of  and  the  best  product  possible  is  turned  out  at  a  cost 
enabling  us  to  meet  the  competition  of  any  country  in 
the  world. 

Destination  of  Our  Exports. — It  is  important  to  note 
carefully  the  continents  and  nations  that  afford  us  the  best 
markets.  It  is  to  be  noted,  however,  that  we  do  not  sell 
all  of  our  exports  directly  to  the  country  consuming  them, 
as  that  we  do  not  buy  all  of  our  imports  from  the  country 
producing  them.  There  is  a  group  of  nations  that  have 
long  made  it  a  practice  to  act  as  middlemen  in  the  trade 
of  the  world,  buying  from  one  country  and  selling  to  an- 
other. The  United  Kingdom,  Germany,  Belgium,  and  the 
Netherlands  had,  before  the  war,  an  immense  re-export 
trade.  These  nations  through  their  long-established  trade 
and  steamship  connections  carried  on  an  enormous  trade 
with  Africa,  Asia,  Australia,  South  and  Central  America, 


EXPORTS   OF  THE   UNITED   STATES 


51 


and  with  the  islands  of  the  sea,  in  which  they  acted  prin- 
cipally as  middlemen.  England  is  often  referred  to  as 
a  nation  of  merchant  traders,  because  of  the  enormous 
business  she  transacts  between  other  nations.  Before  the 
war  we  bought  quantities  of  Brazilian  rubber,  AustraHan 
wool.  South  African  diamonds,  Central  American  and 
Mexican  mahogany,  and  many  other  articles  from  England, 
Germany,  or  the  Netherlands,  and  sold  to  those  trading 
countries  our  products,  a  considerable  part  of  which 
eventually  reached  the  countries  ^ith  which  we  had  very 
little  direct  trade. 

The  destination  of  our  exports  to  the  different  grand 
dixdsions  in  1900  and  in  1914,  with  the  percentage  each 
took  of  our  total  exports,  is  shown  in  the  following  table: 


Continent 


Our  exports 

Per  cent 
of  total 

igoo 

1900 

§1,040,000,000 

74.6 

187,000,000 

13-5 

39,000,000 

2.8 

65,000,000 

4.6 

43,000,000 

31 

19,000,000 

1.4 

Our  exports 
1914 


Pet  cent 
of  total 

1314 


Europe 

North  America 
South  America 

Asia 

Oceania 

Africa 


$1,486,000,000 

528,000,000 

124,000,000 

113,000,000 

83,000,000 

28,000,000 


62 
22 
5 
4 
3 
I 


Europe. — While  Europe  bought  nearly  two-thirds  of  our 
e:q)orts  in  19 14,  the  percentage  of  finished  manufactures 
sold  to  that  continent  constituted  not  quite  34  per  cent  of 
our  total  export  of  manufactured  products.  On  the  other 
hand,  Europe  afforded  a  market  for  nearly  84  per  cent  of 
our  crude  materials  for  use  in  manufacturing  and  for  nearly 
70  per  cent  of  our  foodstuffs  exported.  The  total  exports 
to  Europe  increased  from  a  little  over  a  billion  dollars  in 
value  in  1900  to  nearly  a  billion  and  a  half  dollars  in  1914, 
but  this  increase  was  not  proportionally  as  great  as  that  to 
North  American  countries,  particularly  to  Canada,  or  to 
South  America.  This  is  because  we  extended  the  sale  of 
our  manufactures  to  newer  and  less-developed  countries. 


52       FOREIGN  TRADE   OF  UNITED   STATES 

Since  the  European  nations,  especially  the  United  King- 
dom, Germany,  France,  and  Belgimn,  are  the  centres  of  the 
manufacturing  industry  of  the  world,  they  furnish  ex- 
cellent markets  for  our  surplus  production  of  raw  materials 
and  foodstuffs,  but  cannot  be  looked  upon  as  affording 
opportunities  for  the  extension  of  finished  manufactures  in 
the  same  proportion  as  do  such  rapidly  developing  countries 
as  Canada,  Argentina,  Chile,  Brazil,  and  Australia.  This 
does  not  mean  that  Europe  is  not  an  important  market  for 
our  manufactures,  for  it  is,  of  course,  by  far  the  best  one, 
but  it  indicates  that  the  percentage  of  increase  in  the  sale 
of  finished  manufactures  will  most  naturally  be  greatest 
in  the  countries  in  which  manufacturing  is  little  developed 
and  in  which  the  natural  resources  are  being  most  rapidly 
developed.  This  consideration  is  important,  for  it  ex- 
plains why  such  countries  as  those  embraced  in  Latin 
America,  in  Oceania,  and  in  other  undeveloped  regions  are 
being  given  so  much  attention  by  those  most  interested  in 
the  extension  of  our  foreign  trade.  Russia  is  in  the  same 
category  as  the  other  countries  mentioned.  This  marvel- 
lous country  possesses  boundless  resources;  there  has  been 
during  the  past  decade  a  remarkable  awakening  there, 
and  with  the  establishment  of  a  settled  government  and 
the  return  to  normal  political  and  industrial  conditions,  a 
revival  of  trade  may  be  expected.  Russia  thus  affords 
great  potential  possibilities  for  the  building  up  of  mu- 
tually beneficial  trade  relations  with  the  United  States, 
as  well  as  with  other  great  manufacturing  countries. 

North  American  Countries. — Our  trade  with  the  neigh- 
boring countries  in  North  America  is  increasing  rapidly. 
Canada  is  our  third  best  customer  among  the  nations, 
taking  each  year  more  and  more  of  our  surplus  products, 
especially  those  manufactures  for  which  we  are  seeking  a 
market.  Mexico's  trade  is  mostly  mth  the  United  States, 
from  which  it  purchases  iron  and  steel  manufactures, 
notably  machinery  and  equipment  for  its  mining  and  other 


EXPORTS   OF  THE  UNITED   STATES        53 

industries,  and  other  manufactures.  While  the  trade  of 
Central  America  is  not  large,  we  are  selling  there  in  increas- 
ing quantity  such  manufactures  as  tools,  hardware,  ma- 
chinery, and  textiles.  Cuba  is  being  developed  largely  by 
American  capital,  which  means  that  the  development 
material  is  obtained  in  the  United  States.  Every  North 
American  country  is  experiencing  an  era  of  expansion, 
which  makes  their  trade  promise  well  for  the  future. 

South  America. — The  ten  Latin  American  republics  of 
South  America  are  rich  in  natural  resources  that  have  only 
recently  received  the  attention  that  is  their  due.  The 
United  Kingdom  and  Germany  early  developed  trade 
relations  wdth  these  countries,  and  they  have  supplied  them 
with  a  large  part  of  their  imports.  In  recent  years  the 
United  States  has  expanded  its  trade  to  the  south.  With 
the  establishment  of  closer  trade  relations,  more  direct 
transportation  facilities,  and  a  better  understanding  of  the 
mutually  beneficial  relations  possible  between  the  tw^o 
Americas,  the  trade  is  developing  at  a  most  encouraging 
rate.  Our  present  trade  with  South  America  is  much 
larger  than  that  existing  before  the  World  War,  and  it 
is  generally  conceded  that  our  exporters  will  be  able  to 
hold  most  of  it.  The  Panama  Canal  wiU  eventually  be  an 
important  factor  in  binding  the  two  Americas  together. 
As  railroad  building  and  other  development  projects  in- 
crease, the  demand  for  structural  iron  and  steel,  machinery 
of  all  kinds,  and  staple  manufactures  will  be  felt  through- 
out the  world,  and  the  United  States  will  be  called  upon 
to  supply  its  share.  The  branch  banks  now  being  es- 
tabhshed  by  American  bankers  and  the  readiness  we  are 
showing  10  invest  in  South  American  enterprises  are  two 
factors  that  are  stimulating  the  trade  between  the  two 
continents.  Our  trade  with  the  leading  countries  of  South 
America  is  discussed  in  some  detail  in  another  chapter. 

Asia. — Our  direct  export  trade  with  Asia  is  developing 
very  slowly.    The  United  Kingdom  controls  a  large  part 


54      FOREIGN  TRADE  OF  UNITED   STATES 

of  the  trade  with  India  and  other  British  possessions. 
Japan  is  rapidly  developing  manufacturing,  and  supplying 
not  only  its  own  needs  but  also  a  considerable  portion  of 
those  of  China  and  other  neighboring  countries,  especially 
for  coarse  cotton  goods.  Our  trade  with  Japan  and  China 
is  of  importance;  that  with  the  rest  of  Asia  is  still  small. 
Our  exports  to  Asia  include  those  typical  American  manu- 
factures that  find  a  market  in  every  country  in  the  world, 
such  as  machinery,  railroad  equipment,  office  supplies  and 
equipment,  and  hardware.  Cotton  goods  are  also  sold 
there  in  considerable  quantity.  Flour,  meat  products, 
cotton,  and  petroleum  are  the  other  products  finding  the 
readiest  market. 

Oceania. — Australia  and  New  Zealand  are  two  countries 
that  are  rapidly  increasing  their  production  and  their  pur- 
chasing power.  Our  exports  to  these  countries  nearly 
doubled  between  1907  and  1914.  In  1916  there  was  an 
unprecedented  expansion  of  our  trade  with  Australia, 
which  purchased  goods  valued  at  nearly  $60,000,000  from 
us  that  year  as  against  $45,000,000  worth  in  19 14.  In 
the  three-year  period  from  191 7  to  1920,  still  larger  totals 
were  rolled  up,  largely  due  to  higher  prices.  Our  own 
island  possessions  are  likewise  proving  a  better  market 
for  our  merchandise  each  year.  Manufactured  goods  in 
wide  variety  constitute  the  bulk  of  our  exports  to  these 
countries. 

Africa. — In  general  the  European  countries  having  col- 
onies or  dependencies  in  Africa  control  the  bulk  of  the 
direct  trade  of  that  continent.  In  191 5  our  exports  to 
Africa  amounted  to  only  $28,410,000.  This  was  nearly 
doubled  in  the  year  1918.  They  consisted  mostly  of 
machinery,  railroad  and  mining  equipment,  hardware, 
cotton  goods,  and  clothing.  Our  exports  and  imports  to 
Africa  normally  just  about  balance  each  other.  The 
African  products  that  we  purchase  through  the  United 
Kingdom,  France,  Belgium,  and  other  nations  undoubtedly 


EXPORTS  OF  THE  UNITED   STATES 


55 


greatly  exceed  in  value  those  we  obtain  direct,  and  our  prod- 
ucts that  eventually  find  their  way  to  Africa  amount  to 
many  times  the  value  of  those  that  we  sell  direct.  The 
estabhshment  of  direct  trade  relations  with  African  coun- 
tries, especially  -^^ith  South  Africa,  would  result  in  a  decided 
change  in  our  statistics  of  trade. 

Our  Twenty  Best  Customers. — In  general,  those  nations 
that  have  afforded  us  the  best  markets  in  the  past  can  be 
depended  upon  to  continue  to  absorb  a  large  volume  of 
our  products.  Therefore,  a  close  scrutiny  of  trade  statistics 
in  the  normal  period  between  1905  and  19 14  is  highly  im- 
portant, as  they  indicate  the  probable  trend  of  our  com- 
merce in  future.  The  following  table  shows  our  twenty 
best  customers  in  the  last  pre-war  year,  19 14,  with  the 
sales  to  those  countries  in  1905: 


Country 


Value  of  exports  from 
United  States 


1914 


190s 


United  Kingdom 

Germany 

Canada 

France 

Netherlands 

Italy 

Cuba 

Belgium 

Australasia 

Japan.. 

Argentina 

Mexico 

Spain 

Russia 

Brazil 

Philippines 

China 

Austria-Hungary 

Panama 

Chile 

Denmark 


$594,272,000 
344,794,000 
344,717,000 
159,819,000 
112,216,000 
74,235,000 
68,884,000 
61,220,000 
54,725,000 
51,206,000 
45,179,000 
38,749,000 
30,388,000 
31,303,000 
29,964,000 
28,571,000 
24,699,000 
22,718,000 
22,678,000 
17,432,000 
14,882,000 


^523,398,000 

194,220,000 

140,530,000 

76,337.000 

73,298,000 

38,740,000 

38,381,000 

38,479,000 

26,353,000 

51,720,000 

23,564,000 

45,756,000 

17,038,000 

17,020,000 

10,985,000 

5,761,000 

53,453,000 

11,624,000 

4,746,000 

5,391,000 

15,670,000 


The  table  shows,  in  the  decade  preceding  the  outbreak  of 
the  war,  a  marked  increase  in  our  exports  to  each  of  these 


56      FOREIGN   TRADE   OF  UNITED   STATES 


countries,  with  the  exception  of  China,  Japan,  Mexico, 
and  Denmark.  Japan's  influence  in  China  has  become 
so  great  that  she  has  been  able  to  deflect  a  large  part  of 
the    trade    to    herself.     Unsettled    conditions    preventing 


CORN 


COTTON 


PETROLEUM 


COPPER 


IRON 


COA^ 


LEAD 


WH^AT 


GOLD  SILVER 

SHARE  OF  THE  UNITED  STATES  IN  THE  WORLD'S  PRODUCTION 

OF  LEADING  COMMODITIES 

development  decreased  Mexico's  imports.  Inadequate 
steamship  service  has  militated  against  our  trade  with 
Australia  and  New  Zealand.  Changes  that  have  taken 
place  in  our  trade  since  19 14  are  discussed  in  Chapter  III. 

BIBLIOGRAPHY 

Americans  Interests  After  the  European  War.     American  Academy 
of  Political  and  Social  Science.     Annals,  vol.  61,  September, 

1915- 
Austin,  0.  P.   International  Trade  After  the  War.    New  York,  191 7. 


EXPORTS   OF  THE  UNITED   STATES        57 

Barrett,  J.  Latin  America  as  a  Field  for  United  States  Capital 
and  Enterprise.  Bankers^  Magazine,  vol.  74,  pp.  920-6, 
June,  1907. 

Claxtsen,  John.  America's  Opportunity  for  International  Trade. 
Washington    Bankers'    Association.     Proceedings,    191 7,    pp. 

43-50. 

Clalsen,  John.  Neiv  Era  of  American  International  Trade  and 
Finance.  Economic  World,  n.  s.,  vol.  14,  pp.  544~9>  October 
20,  1917. 

Duval,  George  L.  Our  Commerce  with  South  America — the  Prep- 
aration Required  to  Meet  Intrenched  Competition.  National 
Foreign  Trade  Convention.  Official  Report  of  the  Fifth  Con- 
vention, 1 91 8,  pp.  537-551- 

Grace,  J.  P.  Commercial  Opportunity  of  the  United  States  in  South 
America.  Columbia  University  Quarterly,  vol.  18,  pp.  72-76, 
December,  191 5. 

Hill,  Samtjel.  The  Future  of  American  Trade  with  China,  Japan, 
and  Siberia.  National  Foreign  Trade  Convention.  Official 
Report  of  the  Fifth  Convention^  1918,  pp.  493-9. 

HoGGSON,  N.  F.  What  Are  Our  Chances  for  After-the-War  Orders  ? 
System,  vol.  31,  pp.  13-20,  January,  191 7. 

Howe,  0.  H.  Our  Opportunities  in  South  America.  Education, 
vol.  37,  pp.  504-513,  April,  1917. 

Hutchinson,  Lincoln.  New  Opportunities  in  the  Pacific.  Yale 
Review,  n.  s.,  vol.  3,  pp.  708-725,  July,  1914. 

Murphey,  E.  R.  Where  to  Look  for  New  Markets.  System,  vol. 
32,  pp.  531-4,  718-721,  902-6;  vol.  ss,  pp.  39-42,  191-3,  361-4, 
October,  1917-March,  1918. 

Narodny,  Ivan.  Russian  Markets  Offier  a  Great  Opportunity  for 
American  Foreign  Trade.  American  Bankers'  Association. 
Journal,  vol.  9,  pp.  710-713,  March,  1917. 

National  Foreign  Trade  Council.  World  Trade  Conditions 
After  the  War.  National  Foreign  Trade  Council.  New  York, 
1918. 

Opportunities  for  American  Commercial  Endeavor  in  Russia.  Ameri- 
can Manufacturers  Export  Association.     Yearbook,  1916-17. 

Requard,  G.  G.  Americans  Opportunity.  Moody's  Magazine, 
vol.  19,  pp.  233-6,  May,  1916. 

Taussig,  F.  W.  How  to  Promote  Foreign  Trade.  Quarterly  Jour- 
nal of  Economics,  vol.  $2,  pp.  417-445,  May,  1918. 


CHAPTER  V 

IMPORTS  OF  THE  UNITED  STATES— ARTICLES  AND 

SOURCES 

Nature  of  Our  Imports. — Within  the  confines  of  conti- 
nental United  States  are  produced  all  of  the  absolutely 
essential  articles  required  as  food,  clothing,  and  shelter  for 
the  population.  We  are,  therefore,  in  a  large  measure,  a 
self-sufficient  people.  But  without  foreign  commerce  we 
would  be  deprived  of  many  of  the  luxuries  and  comforts 
and  some  of  the  necessities  of  modern  Hfe.  Our  industrial 
development,  too,  would  be  greatly  hampered  by  the  lack 
of  many  articles  used  in  manufacturing  that  are  supplied 
by  other  countries. 

Therefore,  though  we  produce  a  surplus  of  staple  food- 
stuffs, of  raw  materials,  and  of  manufactures,  there  are 
many  commodities  which  we  find  it  convenient  or  necessary 
to  import.     Our  imports  may  be  classified  as  follows: 

I.  Those  tropical  and  subtropical  products  that  we  are 
unable  to  produce  at  all,  or  in  sufficient  quantity  to 
satisfy  our  wants.  In  this  class  are  included  coffee,  tea, 
cocoa,  spices,  cane-sugar,  rubber  and  rubber  substitutes, 
and  raw  silk.  Our  tropical  imports  for  the  single  year 
1916  were  valued  at  $1,000,000,000,  thus  comprising  nearly 
one-half  of  our  total  imports.  Our  consumption  of  such 
commodities  is  increasing  rapidly,  the  value  having  doubled 
in  the  past  decade.  This  increase  is  only  partly  due  to 
higher  prices.  Some  of  these  articles  we  produce  in  small 
quantity,  notably  cane-sugar,  tea,  and  raw  silk,  but  we 
find  it  more  profitable  to  import  most  of  them.  We  note 
that  this  class  of  imports  supply  us  with  many  valuable 

58 


IMPORTS   OF  THE   UNITED   STATES        59 

articles  of  food  and  also  with  raw  materials  for  use  in  our 

industries. 

2.  Staple  commodities  produced  here,  but  in  insufficient 
quantity  to  meet  the  demand,  as  wool,  hides  and  skins, 
furs,  paper  stock,  vegetable  fibres  (other  than  cotton), 
tin,  and  fertilizers.  Without  these  our  industries  would 
be  sadly  crippled  and  the  range  of  our  activities  greatly 
circumscribed. 

3.  Articles  of  special  types,  grades,  or  qualities,  produced 
in  certain  restricted  districts,  and  needed  to  supplement 
our  own  production.  An  excellent  example  is  Egyptian 
long  staple  cotton,  so  essential  in  some  branches  of  the 
cotton-manufacturing  industry.  Thus  we  find  that  cotton 
is  not  only  our  leading  export  but  that  it  also  figures  some- 
what prominently  in  our  list  of  imports,  totalHng  $36,- 
000,000  in  1 91 8.  Another  example  is  our  importation  of 
Sumatra,  Havana,  and  other  tobaccos,  which  have  certain 
qualities  demanded  by  the  trade. 

4.  Manufactured  articles  that  are  not  produced  here  or 
that  differ  in  greater  or  less  degree  from  those  produced 
here.  In  this  class  of  imports  we  find  many  articles  that 
can  be  and  are  produced  as  well  and  as  cheaply  at  home; 
in  some  cases  the  variation  from  the  domestic  product  is 
slight,  while  in  others  it  is  wide.  Among  these  imports 
are  many  articles  that  might  be  made  here,  but  can  be 
imported  more  cheaply.  This  is  either  because  we  lack 
the  skilled  labor  with  the  special  training  and  experience 
in  those  particular  Hues,  or  because  the  conditions  incident 
to  the  making  of  such  articles  are  unsuited  to  our  tempera- 
ment or  standards.  For  instance,  we  are  only  slowly 
acquiring  tlie  special  skill  requisite  in  the  manufacture  of 
fine  cotton  embroideries  and  laces.  Before  the  war  we 
imported  these  to  the  value  of  about  $40,000,000  annually, 
Swiss  embroideries  alone  costing  us  $10,000,000  each 
year.  So  with  hand-made  articles,  such  as  toys  and  knick- 
knacks.     We  have  not  the  patient,  plodding  disposition 


6o      FOREIGN   TRADE   OF   UNITED   STATES 


characteristic  of  the  Asiatic  or  even  of  the  European 
workers  who  spend  their  lives  making  these  things  for  our 
amusement.  Neither  are  our  workers  able  or  willing  to 
live  on  the  low  wages  too  often  paid  for  such  labor.  Here- 
in lies  one  of  the  advantages  of  international  trade:  it 
enables  each  country  to  devote  itself  to  the  production  of 
those  articles  for  which  it  is  especially  well  adapted  and 
in  w^hich  it  derives  the  most  satisfaction. 

Articles  Both  Imported  and  Exported. — The  division  of 
labor  among  nations  whereby  each  specializes  to  a  certain 
extent  not  only  upon  the  production  of  distinct  classes 
of  commodities,  but  also  upon  particular  types,  or  styles 
or  grades,  results  in  a  very  free  interchange  of  products. 
As  illustrative  of  the  cosmopoHtan  character  of  the  Ameri- 
can market,  which  absorbs  a  wide  variety  of  commodities, 
often  demanding  imported  articles  because  of  their  novelty, 
their  distinction,  or  their  superiority,  supposed  or  real, 
over  the  domestic  product,  the  appended  table  containing 
a  list  of  articles  that  we  both  import  and  export  in  large 
quantities  is  given.  The  values  are  expressed  in  millions 
of  dollars,  and  are  for  the  year  191 5. 


Cars,  carriages,  and  other  vehicles 

Chemicals,  drugs,  and  dyes 

Clocks,  watches,  and  parts 

Cotton  manufactures 

Earthen,  stone,  and  china  ware 

Manufactures    of    fibres    and    textile    grasses 

(other  than  cotton) 

Fruits  and  nuts 

Furs  and  manufactures 

Glass  and  glassware 

Hides  and  skins 

Iron  and  steel  and  manufactures 

Leathers  and  manufactures  of 

Paper  and  manufactures  of 

Spirits 

Vegetables 

Wood  and  manufactures  of 

Wool  manufactures 


Imports 


Exports 


1.4 

851 

83.8 

46.3 

3-7 

2-5 

46.2 

71.9 

8.6 

2.7 

61.5 

12.2 

43-9 

34-9 

10.5 

3-7 

4-5 

5-5 

104. 1 

4.6 

22.7 

225.8 

20.1 

120.7 

25.8 

19.8 

5-5 

19 

9-3 

10.8 

60.7 

49-9 

29.7 

27 -3 

EVIPORTS   OF  THE  UNITED   STATES 


6i 


Source  of  Imports. — The  proportion  in  which  our  im- 
port trade  was  distributed  among  the  different  grand 
divisions  in  1900  and  19 14  is  shown  in  the  following  table, 
which  gives  the  values  expressed  in  millions  of  dollars, 
and  the  percentage  of  our  total  unports  suppKed  by  each. 


Continent 


Europe . 

North  America 
South  America . 

Asia 

Oceania 

Africa 


Our 

imports 
1900 


440.5 

130.0 

93-6 

139.8 

34-6 

II  .2 


Per  cent 

of  total 

I  goo 


5i-« 
153 
II  .0 

16.5 
4.0 

1-3 


Our 
imports 

1914 


895 -6 

427 -3 

222.6 

286.9 

42. 1 

19. 1 


Per  cent 
of  total 

1914 


47-3 
22.6 
II. 8 
15 -2 
2.2 
1 .0 


We  regularly  draw  upon  Europe  for  about  one-haK  of 
our  imports.  Manufactures  come  first  in  the  list,  with 
chemicals  and  such  raw  products  as  hides  and  skins  and 
fibres  holding  important  positions.  Not  all  of  our  Euro- 
pean imports  are  European  products.  The  United  King- 
dom, Germany,  France,  Belgium,  and  the  Netherlands 
all  have  a  lucrative  re-export  trade.  They  assemble  at 
their  trade  centres  the  products  of  many  countries  and  sell 
these  to  importers  the  world  over. 

North  American  countries  are  our  next  best  source  of 
supply,  Canada  leading,  with  Cuba  next  in  importance, 
and  Mexico  third.  Canada  supplies  us  with  timber,  wood- 
pulp  (used  in  paper  manufactures),  minerals,  and  grains. 
Cuba  is  a  splendid  source  of  supply  for  sugar,  molasses,  and 
tobacco.  Mexico  furnishes  us  with  mercury,  gold,  silver, 
cabinet-woods,  hemp,  and  coft'ee.  Central  America  sup- 
pHes  tropical  products. 

From  South  America  we  obtain  a  large  part  of  those 
tropical  products  that  we  need.  Coffee  and  rubber  are 
of  the  greatest  importance.  Minerals,  live  stock,  and 
agricultural  products  are  produced  in  abundance  in  most 


62       FOREIGN  TRADE   OF  UNITED   STATES 

South  American  countries,  and  are  exchanged  for  manu- 
factures. Hence,  these  as  well  as  the  other  Latin  American 
countries  (the  Central  American  republics,  Mexico,  Cuba, 
Haiti,  and  the  Dominican  Republic)  afford  splendid  trade 
opportunities  for  those  nations  producing  a  surplus  of 
manufactures  and  importing  tropical  and  other  raw  prod- 
ucts. 

Asia  supplies  us  with  jute,  tea,  rubber,  tin,  goatskins, 
and  Persian  rugs.  These  commodities  are  obtained  from 
India  and  other  British  possessions  and  from  Persia. 
China  and  Japan  are  our  best  source  of  supply  for  tea,  silk, 
camphor,  and  those  distinctly  Oriental  products  that  find 
a  steady  sale  in  American  markets. 

Oceania,  which  includes  Australia  and  New  Zealand 
and  other  islands  of  the  Pacific,  is  a  part  of  the  globe  in 
which  we  have  not  extended  our  trade  as  rapidly  as  have 
other  nations.  AustraHa's  wool  and  hides  are  two  products 
that  we  need  and  that  we  are  importing  directly  in  in- 
creasing quantities.  Other  imports  from  those  countries 
have  come  to  us  largely  through  the  United  Kingdom  and 
other  European  countries.  Since  these  countries  are  as 
yet  undeveloped  as  far  as  manufacturing  is  concerned  and 
since  they  have  rich  natural  resources  that  only  await 
capital  and  labor  to  make  them  wonderfully  productive, 
they  are  certain  to  hold  a  more  and  more  important  place 
in  the  world's  trade.  The  great  need  to  expand  our  trade 
with  them  is  direct  steamship  routes,  so  that  they  may  be 
able  to  send  their  surplus  raw  material  across  the  Pacific 
and  to  obtain  here  the  manufactured  products  and  struc- 
tural material  they  require. 

Our  direct  trade  with  the  great  continent  of  Africa  has 
been  very  small,  constituting  until  after  the  World  War 
less  than  2  per  cent  of  our  imports  and  a  trifle  over  i  per 
cent  of  our  exports.  Yet  that  continent  produces  many 
commodities  that  we  require,  such  as  tropical  products, 
hides  and  skins,  ivory,  and  sponges.     With  the  increase 


IMPORTS  OF  THE  UNITED   STATES        63 

of  the  American  merchant  marine  and  the  extension  of 
American  banking  facilities  to  this  as  to  other  continents, 
a  greatly  increased  direct  trade  may  be  predicted. 

Latin  America  as  a  Source  of  Imports. — The  fact  that  a 
large  part  of  our  imports  comes  from  South  America  is  of 
great  importance  commercially.  Theoretically,  at  least, 
a  country  from  which  we  buy  should  offer  a  ready  market 
for  such  of  our  exports  as  that  country  needs.  Practically, 
this  has  not  always  proven  true.  For  instance,  we  are 
Brazil's  best  customer,  our  total  purchases  of  coffee,  crude 
rubber,  and  other  products  from  that  country  aggregating 
in  a  single  typical  year  (1914)  $101,329,000.  In  that  same 
year  our  merchants  exported  to  Brazil  goods  valued  at 
only  $29,963,000,  leaving  a  credit  balance  in  Brazil's  favor 
of  $71,366,000,  and  yet  Brazil's  imports  consist  of  just  those 
commodities  that  we  most  desire  to  sell  in  increasing 
quantities  abroad. 

While  we  furnish  a  market  for  nearly  one-half  of  Brazil's 
exports,  that  country  buys  only  a  little  over  one-third  of 
her  imports  from  us.  The  condition  in  regard  to  our  trade 
with  every  one  of  the  important  South  American  republics 
is  the  same,  our  exports  falling  far  below  our  imports  in 
value,  although  this  was  not  the  case  with  respect  to  Argen- 
tina until  after  the  outbreak  of  the  World  War. 

The  result  is  that  while  we  regularly  obtain  from  one- 
fourth  to  one-third  of  our  imports  from  Latin  American 
countries,  these  countries  afford  a  market  for  only  one- 
tenth  to  one-eighth  of  our  surplus  commodities,  and,  con- 
sequently, our  purchases  from  these  countries  fall  not  far 
short  of  double  our  sales.  In  the  years  19 18  and  19 19 
our  exports  more  nearly  approached  the  value  of  our  im- 
ports from  Latin  America.  But  in  normal  times  European 
products  have  been  preferred  there. 

The  reasons  for  this  are  various,  among  which  may  be 
mentioned  the  early  hold  other  countries,  such  as  England 
and  Germany,  obtained  in  Latin  American  markets,  the 


J4       FOREIGN   TRADE   OF   UNITED    STATES 


tao 


Imports- -- 


Exports. 


IMPORTS  AND  EXPORTS  OF  THE  UNITED    STATES,   1860-1916 


IMPORTS  OF  THE  UNITED   STATES        65 


^ 


4. 


fm 


1 


EXPORTS  TO 


m 


fc 
• 


OUR  IMPORTS  AND  EXPORTS  BY  LEADING  COUNTRIES,   1914 

Grouping  the  twenty  Latin  American  republics  together 


66      FOREIGN  TRADE   OF  UNITED   STATES 

oft-reiterated  unwillingness  or  inability  of  American  mer- 
chants to  conform  to  South  American  trade  customs,  and 
the  lack  until  recently  of  adequate  American-controlled 
banking  facilities  in  Latin  America. 

Exporters  and  bankers  agree  in  recommending  the  fol- 
lowing, among  other  measures,  in  order  to  extend  our  Latin 
American  trade,  at  least  to  the  point  where  the  imports 
we  take  from  our  sister  American  republics  shall  be  fully 
offset  in  value  by  the  exports  we  send  them. 

First. — By  obtaining  from  every  source  possible  definite 
and  detailed  information  as  to  the  commodities  imported 
by  the  different  republics,  so  that  the  grades,  qualities, 
design,  and  styles  demanded  may  be  manufactured  and 
offered  to  the  Latin  American  trade. 

Second. — By  developing  our  export  sales  organization 
so  as  to  eliminate  misunderstanding  and  delay,  and  make 
available  to  Latin  America,  with  the  least  possible  expendi- 
ture of  time  and  money,  those  commodities  which  they 
desire  and  which  we  can  supply. 

Third. — By  concerted  effort  on  the  part  of  our  banking 
institutions  to  facilitate  the  financing  of  exports  to  Latin 
America  and  to  co-operate  in  every  way  possible  with 
American  exporters  so  that  they  may  have  banking  facili- 
ties which  are  the  equal  or  superior  to  those  enjoyed  by 
the  commercial  houses  of  other  exporting  nations.  The 
development  in  this  respect  in  the  past  five  years  is  most 
noteworthy,  but  more  is  yet  to  be  done. 

Fourth. — By  encouraging  the  growth  of  the  American 
merchant  marine,  so  that  adequate  shipping  facilities, 
under  the  American  flag,  may  be  available  for  the  ship- 
ment of  American  goods  to  these  countries  in  which  our 
markets  are  being  extended.  With  a  merchant  marine 
flying  a  foreign  flag,  the  odds  are  against  the  American  from 
the  start,  as  is  shown  by  the  pre-war  conditions  in  which 
ships  bringing  Latin  American  products  to  the  United 
States  were  routed  so  as  to  sail  from  here  to  a  British  port 


IMPORTS  OF  THE  UNITED   STATES        67 

and  thence  to  the  Latin  American  port  whence  she  started. 
Thus  we  were  deprived  of  the  direct  shipping  facilities  to 
Latin  America  necessary  to  an  active  export  trade. 

Such  a  triangular  system  had  the  further  disadvantage 
of  making  it  easy  for  the  Latin  American  countries  to  buy 
their  needed  manufactured  products  direct  from  British 
firms,  which  obtained  the  raw  materials  from  us.  Since  it 
is  manufactured  articles  that  are  most  difficult  to  market, 
the  disadvantage  of  such  a  system  is  evident.  While  the 
establishment  of  direct  trade  relations  with  the  less- 
developed  countries  during  the  war  has  had  its  effect  in 
diminishing  our  three-cornered  trade,  the  tendency  is  still 
to  follow  the  old  custom. 

BIBLIOGRAPHY 
See  End  of  Chapter  II 


CHAPTER  VI 

EXPORT  SALES  ORGANIZATION— MANUFACTURES 

Direct  and  Indirect  Exporting. — There  are  two  methods 
of  marketing  manufactured  products  in  foreign  countries. 
The  first  is  through  export  commission  houses  and  other 
middlemen.  The  second  is  by  the  direct  sale  of  the  product 
from  the  manufacturer  to  the  foreign  customers.  These 
customers  may  be  wholesale  importing  and  distributing 
houses  handling  one  or  more  lines  of  merchandise,  whole- 
sale or  retail  mercantile  establishments,  or  the  ultimate 
consumer.  The  nature  of  the  product,  the  established 
system  of  handling  it,  and  other  special  conditions  largely 
determine  the  details.  The  point  is  that  in  selling  direct 
the  manufacturer  sells  to  the  same  customers  as  do  the 
export  commission  houses.  Instead  of  using  the  sales 
organization  of  the  export  house,  the  direct  exporter  de- 
vises and  controls  his  own  methods  of  reaching  the  buyers 
of  his  product. 

Sales  Organization  of  Large  Corporations. — The  selling 
organization  developed  by  those  firms  and  corporations 
that  have  built  up  a  large  and  successful  export  trade 
naturally  vary  according  to  the  product  and  the  countries 
to  which  sales  are  made.  In  general,  however,  the  foreign 
sales  organization  consists  of  an  export  department  in  the 
central  home  office,  in  charge  of  an  export  manager; 
branch  offices  at  the  ports  from  which  the  bulk  of  the  ship- 
ments are  made;  branch  ofiices  located  in  the  foreign  mar- 
kets being  exploited,  each  in  charge  of  a  sales  manager; 
travelling  salesmen  in  the  various  foreign  fields,  who  co- 
operate with  the  branch  offices,  and  local  agencies  in  those 
places  where  other  representation  is  not  maintained. 

68 


EXPORT  SALES  ORGANIZATION  69 

The  sales  organization  just  outlined  has  usually  developed 
by  degrees,  attaining  perfected  form  only  after  some  ex- 
port trade  has  been  established.  In  every  case  it  has  been 
preceded  by  thorough  investigation  of  the  trade  conditions 
and  of  the  possibilities  of  extending  the  sale  of  the  product 
in  the  foreign  field. 

Preliminary  Investigation. — The  investigation  conducted 
by  large  firms  preparatory  to  entering  the  direct  export 
field  has  two  distinct  sides:  that  carried  on  at  home  and 
that  in  the  foreign  country.  Investigation  at  home  makes 
use  of  statistics,  consular  reports  and  other  documents 
issued  by  the  United  States  Government  and  by  those  of 
the  foreign  countries  under  consideration,  reports  of  mer- 
cantile and  export  associations,  trade  journals,  books  and 
articles  dealing  with  the  economic  and  commercial  condi- 
tions of  the  countries,  and  of  many  other  similar  sources  of 
information.  It  includes  a  consideration  of  transportation 
rates  and  transportation  facihties,  tariff  laws  affecting  the 
sale  of  the  product,  banking  facilities  afforded  for  carrying 
on  the  proposed  trade,  and  every  other  phase  of  the  subject 
directly  bearing  on  the  extension  of  business  abroad. 

The  investigation  conducted  in  the  foreign  field  is  often 
preceded  by  a  trip  of  some  duration  made  by  a  responsible 
ofiicer  of  the  firm,  who  appraises  the  situation  at  close 
range,  studies  the  possibihties  for  the  sale  of  the  product, 
the  competition  already  in  the  field,  the  prevailing  business 
methods,  and  the  local  customs  and  conditions  having  a 
bearing  on  the  subject.  If  the  field  promises  good  returns, 
this  preliminary  investigation  is  followed  by  that  made  by 
experts,  w^ho  devote  wrecks  or  even  months  to  collecting 
data  and  preparing  a  complete  report.  The  finished  re- 
port is  thus  described  by  an  authority  on  the  subject: 

These  trade  reports  show  the  general  demand  for  the  particular 
article  under  investigation;  the  quantities  imported  in  prosperous 
and  bad  years,  v/ith  the  latest  figures  of  exports;  the  present  source 
of  supply  and  from  what  foreign  countries  the  demand  has  been 


70      FOREIGN  TRADE   OF   UNITED   STATES 

filled,  and  the  stock  on  hand,  with  wholesale  and  retail  prices.  A 
comparison  is  made  of  the  invoice  prices,  together  with  the  freight 
charges.  .  .  .  This,  added  to  the  customs  duties  upon  the  article, 
gives  the  comparative  cost  of  placing  the  American  goods  in  the 
foreign  country  as  against  a  competing  line  from  Europe,  and  may 
be  used  as  a  basis  for  determining  whether  or  not  there  is  a  profit  in 
entering  the  market.  These  reports  also  show  the  terms  of  pay- 
ment which  are  customary  and  the  manner  of  packing.  They  give 
a  description  of  how  business  is  conducted  in  the  particular  trade  in 
question.  They  indicate  through  what  hands  it  passes  from  the 
manufacturer  to  the  ultimate  consumer,  and  furnish  a  list  of  reliable 
merchants  dealing  in  the  article. 

Steps  in  Developing  a  Sales  Organization. — The  largest 
corporations  have  developed  their  foreign  sales  organiza- 
tion somewhat  as  foUows: 

1.  By  making  a  thorough  study  and  investigation  of 
the  field,  similar  in  general  to  that  just  described,  for 
the  purpose  of  ascertaining  its  trade  possibilities. 

2.  By  organizing  an  export  department. 

3.  By  introducing  a  thorough  system  of  instruction 
for  the  benefit  of  every  member  of  the  export  depart- 
ment, including  those  to  be  sent  abroad. 

4.  By  establishing  branch  offices  or  houses  in  the  trade 
centres  of  the  various  countries. 

5.  By  the  selection  of  resident  agents,  usually  by  the 
managers  of  the  branch  offices,  to  handle  the  product, 
usually  on  a  commission  basis.  The  resident  agents 
selected  are,  in  most  cases,  men  engaged  in  business  in 
the  community. 

6.  By  sending  out  travelling  men,  who  work  in  con- 
junction with  the  branch  offices  and  with  the  resident 

.  agents.  The  salesmen  push  the  sale  of  the  product,  which 
the  customer  purchases  through  the  resident  agent,  or, 
in  some  instances,  through  the  branch  house. 

7.  The  preparation  and  distribution  of  catalogues, 
booklets,  price-lists,  and  other  advertising  matter,  all 
in  the  language  of  the  country. 


EXPORT  SALES  ORGANIZATION  71 

Methods  Employed  by  the  Standard  Oil  Company. — An 

understanding  of  the  complicated  and  thoroughgoing 
organization  built  up  by  the  largest  corporations  will  be 
greatly  facihtated  by  considering  in  some  detail  that  of 
the  most  successful  of  these,  the  Standard  Oil  Company. 
When  that  corporation  first  considered  the  advisabihty  of 
entering  the  direct  export  field,  instead  of  selHng  to  foreign 
countries  through  commission  houses  who  distributed  the 
product  through  agents  in  the  various  countries,  it  first 
made  an  exhaustive  study  of  the  situation.  A  period  ex- 
tending over  five  years  was  occupied  in  preparing  for  the 
export  business  of  that  corporation,  which  has  been  the 
most  successful  of  any  in  the  world.  Experienced  men  were 
sent  abroad,  studying  markets,  duties,  restrictions  on  the 
conduct  of  business  by  foreign  firms,  customs  and  tradi- 
tions affecting  the  demand  for  their  product,  and  other 
basic  conditions.  In  some  countries  it  proved  difficult  to 
secure  permission  to  enter  the  field.  Diplomacy,  powerful 
influence,  tactful  suggestions  as  to  desirable  changes  in 
the  laws  and  governmental  poHcy,  and  other  well-directed 
propaganda  were  all  resorted  to  as  needed,  in  order  to  se- 
cure the  right  to  carry  on  business  under  reasonably  favor- 
able conditions.  In  some  countries,  where  the  policy  of  a 
fair  field  and  no  favor  prevailed,  little  preliminary  work  of 
this  nature  was  required;  in  others  much  missionary  work 
was  necessary. 

It  was  not  until  1880  that  the  Standard  actively  entered 
the  export  field.  In  order  to  fully  develop  the  possi- 
biHties  of  every  district,  it  was  found  advisable  to  build 
up  a  selling  and  distributing  system  very  similar  to  that 
used  in  the  United  States.  It  established  branch  offices  in 
every  important  point,  with  central  distributing  stations 
where  the  oil  could  be  suppHed  to  dealers  and  consumers, 
placed  small  stations  wherever  the  need  arose,  put  out  re- 
tail wagons  just  as  are  used  in  the  United  States,  and  sup- 
plemented this  direct  selling  organization  with  agencies  in 


72       FOREIGN  TRADE  OF  UNITED   STATES 

out-of-the-way  places,  where  the  consumption  did  not  jus- 
tify placing  a  station.  It  did  not  merely  '^  supply  the 
trade";  it  used  every  method  and  device  possible  to  create 
a  demand  for  its  product.  These  included  propaganda  in 
the  form  of  advertising,  booklets,  and  other  publicity, 
the  solicitation  of  business,  demonstrations  of  the  uses  of 
the  product,  and  other  methods  of  trade-building.  In 
China  and  elsewhere,  where  modern  lamps  were  unknown, 
the  company  supplied  their  customers  with  lamps  giving 
excellent  light  with  a  small  consumption  of  oil  at  a  price 
lower  than  the  cost  of  manufacture. 

Not  only  did  this  corporation,  which  has  never  believed 
in  half  measures,  develop  a  sales  organization  of  the 
highest  efficiency,  but  it  also  improved  its  distributing 
system  so  as  to  reduce  the  cost  of  transportation.  It 
installed  a  system  similar  to  that  used  in  the  United 
States,  where  the  oil  is  pumped  from  the  well  to  storage- 
tanks,  thence  to  the  refinery,  where  the  crude  product  is 
manufactured  into  refined  oil,  thence  pumped  into  tank- 
cars,  conveyed  to  the  port,  pumped  into  tank- steamers, 
and  thus  taken  to  the  foreign  port.  Here  it  is  pumped  into 
tank-cars  again,  carried  to  great  tanks  at  the  distributing 
centres,  and  is  pumped  from  these  tanks  into  oil-wagons, 
to  be  taken  to  the  substations  and  peddled  from  place  to 
place.  The  use  of  barrels  for  shipment,  which  were  costly 
and  required  much  handling,  has  thus  been  eliminated  to  a 
large  extent. 

The  oil  is  sold  to  foreign  consumers  in  cans  just  as  it  is 
in  the  United  States.  It  is  of  interest  to  note  that  the 
value  of  selecting  a  trade-mark  that  appeals  to  the  customer 
is  recognized  by  this  corporation,  which  in  India  supplies 
the  public  with  the  ''Elephant  Brand"  of  oil  put  up  in 
cans  adorned  with  the  picture  of  that  sacred  animal.  Prac- 
tically all  of  the  product  sold  abroad  is  said  to  be  produced 
in  the  United  States.  Where  the  refined  product  is  dis- 
criminated against  by  tariff  schedules  or  otherwise,  re- 


EXPORT  SALES  ORGANIZATION  73 

fineries  are  built  and  the  crude  product  is  shipped  from  the 
United  States.  It  sells  its  product  in  every  country  of  the 
world;  it  is  stated  that  there  were  more  Standard  Oil 
wagons  in  Europe  in  19 14  than  in  the  United  States. 

The  United  States  Steel  Corporation. — The  decision  of 
the  United  States  District  Court  for  the  district  of  New 
Jersey,  rendered  in  191 5,  denying  the  petition  of  the  De- 
partment of  Justice  for  a  decree  for  the  dissolution  of  the 
United  States  Steel  Corporation,  contains  a  clear  statement 
of  the  part  that  such  corporations  have  played  in  extending 
the  foreign  trade  of  the  nation.  The  following  summary 
of  that  part  of  the  decision  is  from  a  bulletin  issued  by  the 
National  City  Bank  of  New  York: 

The  court  finds  that  by  means  of  its  extensive  organization,  its 
large  capital,  the  diversity  of  its  products,  and  the  great  volume  of 
its  business,  the  Steel  Corporation  has  been  able  to  greatly  increase 
the  exportation  of  iron  and  steel  products.  When  it  was  organized, 
the  total  exports  of  such  products  from  this  country  were  about 
$31,000,000  per  annum,  but  these  sales  were  made  in  a  desultory 
way,  largely  for  dumping  purposes,  and  without  any  attempt  to 
develop  the  foreign  trade  in  a  systematic  and  permanent  manner. 
The  Steel  Corporation  created  a  subsidiary  company,  known  as 
the  Steel  Products  Company,  to  handle  this  business.  It  owns 
some  40  warehouses  in  important  foreign  trade  centres  in  which 
ample  stocks  of  all  goods  likely  to  be  called  for  in  the  trade  are 
carried.  There  are  15  of  these  warehouses  in  South  America. 
There  are  many  other  places  where  the  goods  are  kept  on  sale 
through  representatives,  over  300  in  all,  in  60  countries.  These 
depots  afford  the  facilities  for  the  prompt  despatch  of  orders  to  all 
parts  of  the  world.  For  example,  a  warehouse  is  maintained  in 
Antwerp,  although  there  are  practically  no  sales  in  Belgium,  be- 
cause Antwerp  is  an  important  shipping  centre  with  frequent  sail- 
ings to  many  points,  and  for  the  same  reason  there  is  a  warehouse 
at  Trieste  to  accommodate  trade  in  the  Adriatic  and  eastern  Medi- 
terranean. The  result  of  efforts  to  create  trade  in  British  Columbia 
is  described.  A  warehouse  was  established  at  Vancouver,  but  the 
freight  rate  on  steel  from  Pittsburg  to  Vancouver  was  prohibitory 
as  against  the  water  rate  from  Liverpool  and  a  customs  discrimina- 
tion of  ^^}4  per  cent  in  favor  of  British  steel.  The  Steel  Products 
Company  established  a  line  of  steamers  of  its  own  through  the  Straits 


74      FOREIGN  TRADE   OF   UNITED   STATES 

of  Magellan.  These  steamers  touch  at  several  ports  on  the  west 
coast  of  South  America  and  Mexico,  some  of  which  have  no  regular 
steamers  from  the  United  States,  and  they  have  been  carrying  con- 
siderable goods  for  other  manufacturers  in  this  country  who  have 
no  other  facilities  for  reaching  these  ports.  In  order  to  obtain  re- 
turn freight,  these  steamers  load  with  lumber  or  coal  for  the  Gulf 
of  CaHfornia;  there  they  reload  with  copper  matte  for  Dunkirk, 
France,  and  in  France  take  on  chalk  for  New  York. 

The  Steel  Products  Company  now  owns  twelve  steamers  and  has 
several  times  that  number  chartered.  In  order  to  justify  such 
extensive  arrangements  for  marketing  and  transportation  as  these, 
the  court  finds  that  a  great  variety  and  large  volume  of  products 
is  necessary.  It  finds  that  the  Steel  Corporation  has  gone  beyond 
the  capacity  and  equipment  of  its  own  works,  and  has  aided  the 
manufacturers  of  other  steel  products  to  enter  the  export  trade 
by  furnishing  basic  materials  to  them  at  special  prices  for  this 
purpose  and  marketing  their  goods  through  their  agencies.  A 
list  of  158  such  manufacturers  was  furnished. 

Furthermore,  in  order  to  create  an  outlet  for  its  goods,  the  Steel 
Products  Company  will  take  contracts  for  construction  work  where 
this  is  necessary,  and  to  this  end  maintains  a  permanent  engineer- 
ing force  in  Buenos  Aires.  It  put  up  the  first  steel  building  in  that 
city,  and  has  put  up  most  of  the  steel  buildings  in  South  America. 
These  are  the  alert,  effective,  and  aggressive  methods  by  which  the 
steel  exports  of  the  United  States  were  increased  from  $31,000,000 
in  1901  to  $91,000,000  in  1911.  The  court  is  of  the  opinion  that 
such  efforts  are  possible  only  to  such  an  organization. 

While  few  corporations  have  found  it  necessary  to  adopt 
such  thoroughgoing  methods  as  those  just  outlined,  the 
firms  that  have  won  marked  success  in  the  foreign  field 
have,  nevertheless,  spent  large  sums  of  money  in  develop- 
ing this  branch  of  the  business,  and  have  seldom  reaped 
returns  for  the  first  few  years.  Such  expenditures  are  con- 
sidered as  part  of  the  investment,  which  will  produce  satis- 
factory results  in  due  time.  The  establishment  of  foreign 
connections,  the  gaining  of  thorough  familiarity  with  con- 
ditions in  the  foreign  field,  the  learning  what  to  do  and  what 
not  to  do,  and  the  training  of  a  corps  of  expert  workers  all 
require  time  and  patience,  but  once  accomplished  the  re- 
sults have  almost  invariably  proven  eminently  worth  while. 


EXPORT  SALES  ORGANIZATION  75 

Sales  Methods  Used  in  Direct  Exporting. — The  sales 
methods  used  in  direct  exporting  may  be  considered  under 
fLve  heads,  as  follows: 

1.  Branch  Offices  established  in  the  various  trade 
centres,  each  under  the  management  of  an  executive 
clothed  with  final  authority  in  all  but  the  most  important 
matters  affecting  the  pohcy  of  the  corporation. 

2.  Salesmen. — These  are  of  two  classes:  those  working 
out  of  branch  houses  in  the  foreign  countries,  and  those 
sent  out  by  houses  that  maintain  no  foreign  branches. 

3.  Foreign  Agencies. — These  are  usually  well-estab- 
lished firms  of  the  nationality  of  the  country,  who  are 
given  the  exclusive  agency  for  the  product  for  a  city, 
district,  or  for  the  entire  country. 

4.  Advertising  in  export  journals,  trade  journals,  and 
local  pubhcations. 

5.  Distribution  of  Catalogues  and  circulars  and  direct 
correspondence  with  prospective  customers. 

These  methods  overlap  in  many  cases,  even  to  the  ex- 
tent of  one  firm  making  use  of  all.  Each  will  now  be  con- 
sidered in  some  detail. 

Branch  Offices. — These  are  located  in  the  trade  centres 
of  the  various  countries.  They  operate  either  through 
salesmen  or  agencies  or  both.  In  most  cases  each  branch 
maintains  a  corps  of  salesmen,  each  having  a  district  al- 
lotted to  him  in  which  he  makes  every  effort  to  push  the 
sales  of  the  product.  Branch  houses  are  sometimes  execu- 
tive offices  under  the  management  of  a  general  sales 
manager,  who  directs  the  work  of  the  salesmen,  appoints 
agencies,  and  co-operates  with  such  agencies,  attends  to 
the  forw^arding  of  orders,  the  receiving  of  shipments,  to  the 
collection  of  accounts,  to  the  assembling  of  credit  and  trade 
information,  and  to  other  details  of  the  business.  Branch 
houses  often  carry  a  full  fine  of  samples;  sales  are  made 
from  these  samples  and  orders  transmitted  by  cable.    Those 


76      FOREIGN   TRADE   OF   UNITED   STATES 

maintained  by  the  largest  corporations  usually  carry  a 
large  stock  of  goods.  They  thus  become  mercantile 
establishments,  which  supply  their  customers  with  their 
wares  without  waiting  for  an  order  to  be  shipped  from  the 
United  States.  The  advantages  of  such  a  system  are  ob- 
vious, but  the  increased  capital  and  the  large  organization 
entailed  make  it  practicable  only  in  the  case  of  a  limited 
number  of  corporations  doing  a  business  of  immense  pro- 
portions. 

Salesmen. — Those  manufacturers  that  consider  the  ex- 
tension of  their  foreign  sales  as  an  important  factor  in  the 
business,  and  who  have  won  or  hope  to  win  permanent 
success  in  the  export  field,  have,  in  the  great  majority  of 
cases,  organized  an  efficient  sales  force,  which  they  maintain 
in  the  foreign  market  being  exploited.  Providing  the 
volume  of  export  business  that  may  be  secured  warrants 
the  expense,  a  well-qualified  salesman  is  considered  the 
best  means  of  getting  that  business.  Where  there  is  no 
branch  office  maintained,  the  duties  of  the  salesman  are  not 
confined  to  pushing  the  sale  of  the  goods.  He  may  find  it 
his  duty  to  check  up  Hsts  of  prospects,  to  add  to  such  a 
list,  to  distribute  catalogues  and  advertising  matter,  to 
report  on  trade  conditions  and  on  the  credit  standing  of 
prospective  customers,  to  appoint  local  agents,  and  even  to 
attend  to  the  collection  of  accounts  and  the  adjustment  of 
any  misunderstandings  that  may  arise  between  his  firm  and 
their  customers.  It  is  readily  seen  that  a  salesman  quali- 
fied to  perform  the  various  tasks  suggested  must  be  one 
of  wide  experience,  proven  probity,  and  unusual  ability. 
Consequently,  his  remuneration  is  usually  high;  it  consists 
of  a  salary  and  a  commission  on  sales.  The  fact  that  the 
expenses  of  a  salesman  in  the  foreign  field  are  generally 
much  heavier  than  at  home  makes  a  fairly  respectable 
income  a  necessity. 

Foreign  Agencies. — These  are  of  two  classes:  foreign 
business  firms  and  manufacturers'  resident  agents.     The 


EXPORT  SALES  ORGANIZATION  77 

largest  part  of  the  direct  export  business  of  the  average 
manufacturer  is  secured  and  handled  through  foreign 
firms  to  which  an  exclusive  agency  for  a  district  is  granted. 
Merchants  and  small  dealers  are  their  customers.  They 
have  excellent  opportunities  to  push  the  sales  of  a  given 
product,  because  they  are  usually  well-known  and  long- 
estabHshed  firms  of  the  same  nationality  as  their  customers. 
They  understand  and  share  the  tastes  and  prejudices  of  the 
buying  public,  have  the  confidence  of  their  fellow  citizens, 
have  a  social  position  in  the  city  in  which  they  carry  on 
business,  and  bear  an  intimate  relation  to  the  life  of  the 
community  difficult  for  an  outsider  to  acquire.  They  are 
thus  able  to  adapt  their  methods  to  the  demands  of  the 
trade  and  to  secure  business  where  an  American  would 
often  utterly  fail.  German  exporters  have  made  the  widest 
use  of  such  agencies  with  most  gratifying  results. 

The  method  of  selecting  firms  to  act  as  agents  is  im- 
portant. While  this  is  sometimes  done  by  correspondence 
\Aith  good  results,  it  is  considered  better  policy  to  make  the 
appointment  only  after  a  personal  visit  to  the  field  by  a 
representative  of  the  firm.  When  this  is  not  practicable, 
correspondence  is  opened  with  persons  or  firms  recom- 
mended by  United  States  consuls,  banks,  and  others. 

A  general  agency  is  confined  to  a  territory  of  workable 
extent,  seldom  including  a  whole  country.  As  a  rule  a  firm 
is  sought  that  does  not  handle  competing  lines,  though,  if 
there  is  considerable  variation  in  price  and  quality,  the 
same  agency  may  successfully  handle  the  products  of  com- 
peting firms.  Here  again  the  nature  of  the  wares  and  local 
conditions  govern. 

Local  agencies  are  made  use  of  in  much  the  same  way  as 
are  general  agencies,  their  customers  being  the  consumer 
and  not  other  dealers.  Such  agencies  are  appointed  either 
by  the  manager  of  branch  offices,  by  salesmen,  or  by  gen- 
eral agencies.  Their  operation  is  confined  to  a  city,  town, 
or  small  district.     They  often  prove  of  great  value  in  ex- 


78      FOREIGN  TRADE   OF   UNITED   STATES 

tending  the  sale  of  a  given  product,  though  this  is  not  al- 
ways the  case. 

Another  class  of  agents,  not  readily  distinguished  from 
salesmen,  is  that  known  as  manufacturers'  or  resident 
agents.  Such  an  agent  lives  in  a  trade  centre,  usually 
maintains  an  ofhce  with  sample-rooms,  and  represents 
either  one  manufacturer  or  a  group  of  manufacturers. 
It  is  his  business  to  promote  the  sale  of  the  wares  he  repre- 
sents. He  works  on  a  commission  basis.  He  deals  not 
with  the  consumer,  but  with  retail  or  wholesale  firms. 
Manufacturers  having  small  capital  or  small  chance  of 
developing  a  large  volume  of  business  in  foreign  markets 
often  find  it  to  their  advantage  to  make  use  of  a  group  rep- 
resentative, who  handles  several  fines  and  often  succeeds 
in  building  up  a  large  volume  of  business  for  each  of  his 
principals.  Such  a  representative  is  usually  of  the  same 
nationaHty  as  his  customers,  though  American  salesmen 
sometimes  develop  such  a  business  with  marked  success  in 
markets  with  which  they  are  famifiar. 

Advertising. — Advertising  in  foreign  trade  is  used  either 
to  promote  the  sale  of  goods  through  salesmen  and  local 
agencies  or  to  work  up  a  mail-order  business.  The  me- 
diums selected  are  export  journals,  trade  papers,  and  local 
pubHcations.  The  Bureau  of  Foreign  and  Domestic  Com- 
merce issues  a  document  which  contains  a  very  complete 
list  of  all  foreign  publications,  with  data  as  to  frequency 
of  publication,  extent  of  circulation,  advertising  and  sub- 
scription rates,  and  the  general  character  of  the  publication. 
Manufacturers  are  thus  enabled  to  select  their  medium. 
Copy  is  prepared  by  the  regular  advertising  department 
and  translated  by  a  skilled  translator,  who  is  thoroughly 
famifiar  with  the  niceties  of  the  language  and  with  local 
customs  and  traditions.  Many  manufacturers  carrying 
on  an  extensive  advertising  campaign  in  the  foreign  field 
employ  an  advertising  agency,  whose  business  it  is  to  have 
a  somewhat  definite  knowledge  of  the  character  of  adver- 


EXPORT  SALES   ORGANIZATION  79 

tising  that  has  the  greatest  pulling  power  in  the  market 
in  question. 

The  appeal  made  by  the  advertising  copy  scoring  the 
greatest  success  in  the  United  States  often  proves  ineffec- 
tive in  other  countries.  The  finding  of  the  point  of  con- 
tact, the  emphasis  made  in  the  appeal,  the  whole  form  and 
structure  and  character  of  the  advertisement  require  an  ex- 
pert who  knows  the  tastes,  the  character,  the  traditions, 
the  prejudices  of  those  prospective  customers  who  may  read 
the  copy.  It  is  only  by  looking  at  an  article  through  the 
eyes  of  the  foreign  customer,  and  so  framing  the  advertising 
copy  as  to  play  up  the  goods  from  this  angle,  that  results 
can  be  won  in  foreign  lands.  The  appeal  may  be  in  the 
price  or  in  the  quality,  in  the  durabihty  or  the  fragility,  in 
the  size  or  shape,  in  the  form  or  color.  It  may  be  because 
it  is  a  novelty,  something  new  and  strange,  or  because  it  is 
a  staple,  well  known  and  familiar.  Where  the  color  counts 
not  at  all  in  the  domestic  sales,  it  is  not  infrequently  found 
to  play  an  exceedingly  important  part  in  foreign  sales. 
Unless  the  appeal  is  correctly  determined,  foreign  adver- 
tising necessarily  fails  to  create  the  desire  for  the  article 
which  is  the  purpose  of  all  advertising.  The  firm  exploit- 
ing the  foreign  field  finds  the  point  of  contact,  and  frames 
its  advertising  accordingly.  Closely  allied  to  this  is  the 
importance,  the  character,  size,  shape,  and  color  of  the  con- 
tainers often  hold  in  the  sale  of  the  article  in  the  foreign 
market.  When  these  are  cleverly  adapted  to  the  trade, 
the  placement  of  the  goods  is  often  greatly  facilitated; 
trade-marks  and  trade  names  are  likewise  of  importance, 
often  proving  the  winning  factor  in  the  sale  of  the  goods. 

Catalogues,  Circulars,  Direct  Correspondence. — The 
distribution  of  catalogues,  circulars,  and  price-lists  through 
the  mails,  followed  by  systematic  correspondence,  is  a 
method  of  reaching  the  foreign  buyer  that  has  been  used 
with  gratifying  results  by  many  American  manufacturers. 
Special  editions  of  the  firm's  catalogue  are  issued  in  the 


8o      FOREIGN  TRADE   OF   UNITED   STATES 

required  language,  and  are  distributed  to  selected  lists  of 
prospects.  The  export  catalogue  includes  only  those  lines 
or  articles  adapted  to  the  needs  of  the  community  in  which 
it  is  circulated.  It  contains  a  definite  description  of  the 
articles,  with  exact  weight  and  dimensions  as  packed  for 
export,  with  approximate  cost  of  delivery  by  mail,  express, 
or  freight,  as  the  case  may  be.  The  price  is  stated  in 
United  States  money  and  in  the  money  of  the  country  in 
question.  The  duty  is  specified  where  this  is  practicable. 
Thus  the  prospective  customer  is  able  to  determine  just 
what  the  article  will  cost  him  delivered. 

While  every  kind  of  commodity,  from  locomotives  and 
gas-engines  to  pins  and  carpet-tacks,  may  be  and  have 
been  sold  from  catalogues,  this  method  is  especially  well 
adapted  for  selling  articles  of  comparatively  small  size 
and  weight,  which  can  be  delivered  by  parcel-post. 

International  Parcel-Post. — The  place  occupied  by  the 
parcel-post  in  international  commerce  is  far  more  im- 
portant than  is  usually  realized.  In  191 3  parcels  valued 
at  $45,000,000  were  sent  out  of  England  by  parcel-post; 
those  sent  from  Germany  and  from  Austria-Hungary  ex- 
ceeded this  figure;  France  led  all  the  nations  in  the  extent 
of  overseas  con^nerce  thus  transported,  the  value  of  such 
exports  being  over  $113,000,000.  Other  nations  Hkewise 
carried  on  a  large  parcel-post  business,  which  is  not  taken 
cognizance  of  in  the  ofiicial  statistics  of  foreign  commerce, 
but  which  aggregate  many  milHons  of  dollars  annually. 
The  volume  and  value  of  the  commerce  thus  carried  on  in 
191 5  and  1916  greatly  exceeded  that  of  the  period  ante- 
dating the  World  War,  England  alone  doubling  the  value 
of  the  merchandise  sent  out  of  the  country  through  this 
medium.  The  development  of  the  parcel-post  in  the 
United  States  has  added  a  new  and  effective  method  for 
the  extension  of  our  trade  relations  with  other  nations.  It 
is  especially  helpful  in  the  first  stages  of  exporting,  where  a 
manufacturer  begins  to  explore  tentatively  the  opportuni- 


EXPORT  SALES  ORGANIZATION  8i 

ties  afforded  for  the  sales  of  his  wares  to  foreign  consumers. 
While  no  record  is  kept  of  the  value  of  wares  thus  sent 
to  foreign  countries,  it  is  estimated  at  $50,000,000  for 
1916. 

Extensive  mail-order  and  catalogue  trade  has  thus  been 
obtained  by  manufacturers  of  articles  suitable  for  this 
method  of  transmission,  notably  shoes,  books,  gloves,  con- 
fectionery, and  household  utensils.  Consular  invoices 
are  not  required  on  parcel-post,  except  in  the  case  of  a  few 
countries,  which  means  a  considerable  saving;  the  charge 
for  a  minimum  bill  of  lading  required  by  ocean  carriers  on 
small  shipments  is  likewise  avoided.  A  customs  declaration 
is  required.  The  form  is  obtainable  at  United  States  post- 
offices.  The  contents  of  each  parcel  must  be  accurately 
described  and  the  value  stated  on  this  declaration,  which 
is  attached  to  the  parcel  in  the  form  of  a  tag.  Parcels 
must  be  so  wrapped  as  to  permit  their  contents  to  be  ex- 
amined by  postmasters  and  customs  officials.  In  general, 
liquids,  poisonous,  explosive,  and  inflammable  substances 
are  excluded.  Articles  dutiable  in  the  country  of  destina- 
tion are  admitted.  Arrangements  made  by  the  United 
States  with  most  foreign  countries  limit  the  weight  of  such 
parcels  to  eleven  pounds  and  the  size  to  six  feet  by  three  and 
one-half  feet.  The  rate  is  twelve  cents  a  pound  or  fraction 
thereof. 

The  Webb-Pomerene  Act. — In  closing  the  discussion  of 
export  sales  organization,  the  effect  of  the  Webb-Pomerene 
Act,  passed  in  19 18,  calls  for  consideration.  That  act 
authorized  the  formation  of  export  associations  by  manu- 
facturers of  competing  products.  This  opened  the  way 
for  the  pooling  of  interests  by  the  firms  engaged  in  export 
business.  Under  the  law  the  export  sales  organization  of 
one  firm  or  corporation  may  be,  by  mutual  consent,  taken 
advantage  of  by  another,  foreign  territory  may  be  divided 
among  competing  firms,  and  other  arrangements  made  to 
further  the  export  trade  of  the  firms  concerned. 


82       FOREIGN  TRADE   OF   UNITED   STATES 

The  Guaranty  Trust  Company  of  New  York  in  its  cir- 
cular of  January  29,  1920,  has  this  to  say  of  the  law: 

The  Webb-Pomerene  law  has  released  this  country  from  pre- 
vious legal  restrictions,  and  made  possible  forms  of  combination  quite 
as  effective  as  those  hitherto  adopted  in  Germany,  England,  and 
elsewhere.  More  than  one  hundred  organizations  of  American 
exporters  have  filed  papers  with  the  Federal  Trade  Commission 
since  the  passage  of  the  Webb  law,  indicating  their  intention  of 
combining  in  this  way.  They  will  achieve  a  double  result.  First, 
they  will  be  able  to  compete  with  European  selling  organizations 
in  Latin  America,  the  Far  East,  and  other  outside  markets.  Second, 
they  will  be  able  to  oppose  a  united  front  to  all  attempts  of  European 
buying  combinations  to  depress  American  export  prices  through 
playing  one  American  concern  against  another.  The  Guaranty 
Trust  Company  of  New  York  has  issued  a  booklet  on  Combining 
for  Foreign  Trade,  explaining  in  considerable  detail  the  possible 
forms  of  export  combination  under  the  Webb  law,  and  illustrating 
by  charts  some  of  the  more  famous  European  combinations. 

BIBLIOGRAPHY 

Arnold,  J.  H.  Advancement  of  American  Trade  Interests  in  China. 
Overland  Monthly,  n.  s.,  vol.  57,  pp.  457-470.     May,  1911. 

AuGHiNBAUGH,  W.  E.     Selling  Latin  America.     Boston,  191 5. 

DuDENEY,  F.  M.  Exporters^  Handbook  and  Glossary.  New  York, 
1916. 

FiLSiNGER,  E.  B.     Exporting  to  Latin  America.     New  York,  191 6. 

FoRTESCUE,  G.  South  American  Trade  Hints.  Bulletin  Pan- 
American  Union,  vol.  32,  pp.  261-9.     February,  191 1. 

Hough,  B.  0.     Practical  Exporting.     New  York,  191 5. 

Landau,  H.  L.  Starting  Trade  with  Latin  America.  System,  vol. 
26,  pp.  478-482.     November,  1914. 

McCoRMiCK,  C.  H.  What  Seventy-One  Years  in  Business  Have 
Taught  Us.     System,  vol.  31,  pp.  148-154.     February,  191 7. 

Rose,  S.  H.  Common-Sense  Majiagement  of  an  Export  Department. 
Chicago,  191 7. 

U.  S.  Bureau  of  Foreign  and  Domestic  Coiimerce.  Exporting 
to  Australia.  Practices  and  Regulations  to  Be  Observed  by  an 
American  Shipper.  (Miscellaneous  series  no.  45.)  Washing- 
ton, 1916. 

Wyman,  W.  F.  Organizing  for  Export  Trade.  Systemy  vol.  28, 
pp.  13 1-7.     August,  1915. 


EXPORT  SALES   ORGANIZATION  83 

Wyman,   W.   F.     How  Advertising  Gets  Foreign   Trade.    System, 

vol.  27,  pp.  613H519.     June,  1915. 
Wyman,  W.  F.     How  to  Go  After  Foreign  Trade.    System,  vol.  28, 

pp.  23-29.    July,  1915. 
Wyman,  W.  F.     Planning  a  Sales  Campaign  in  South  America. 

System,  vol.  26,  pp.  371-6.    October,  1914. 


CHAPTER  VII 

EXPORT  AND  IMPORT  COMMISSION  HOUSES 

Importance  in  Development  of  International  Trade. — 
The  part  played  by  export  commission  houses  in  inter- 
national trade  has  been  an  important  one  since  their  rise 
in  the  sixteenth  century.  Their  service  in  facilitating  the 
exchange  of  products  is  well  described  by  Professor  Clive 
Day  in  his  History  of  Commerce.  In  describing  the  ex- 
tensive trade  of  a  wholesale  merchant  of  Frankfort  about 
1600,  who  bought  silk  and  drugs  in  Venice,  spices  in  Am- 
sterdam, and  sent  them  for  sale  to  Hamburg;  iron  and  wax 
in  Hamburg  and  sent  them  to  Spain;  indigo  and  wool  in 
Spain  and  sent  them  to  Amsterdam  and  Antwerp;  rye  in 
Amsterdam  and  sent  it  to  Genoa,  Professor  Day  says: 

Such  a  business  would  have  been  impossible  in  the  Middle  Ages, 
when  a  merchant  accompanied  his  wares  or  shared  his  responsi- 
bilities with  a  few  associates.  It  was  made  possible  now  by  the 
development  of  the  commission  trade.  Commission  merchants,  or 
factors,  made  it  their  profession  "to  buy  and  sell  for  other  business 
men  for  a  certain  profit  which  is  given  them  for  their  trouble  by 
the  principals."  Sometimes  they  were  in  business  on  their  own  ac- 
count also;  sometimes  they  were  specialists  in  various  lines.  A 
writer  of  the  seventeenth  century  distinguished  five  classes:  those 
who  lived  in  a  manufacturing  or  commercial  centre  and  bought 
goods  for  others;  those  who  sold  goods  for  others;  the  correspon- 
dents of  business  men  and  bankers  who  make  collections  and  re- 
mittances of  money  for  them;  forwarders,  who  received  and  for- 
warded goods  at  places  of  transshipment,  and,  finally,  the  agents 
for  carriers,  who  distributed  and  collected  the  load  of  a  freight- wagon 
in  a  city.  The  duties  of  a  mercantile  factor,  in  general,  were  to 
advise  his  principal  frequently  concerning  the  market  for  wares, 
the  course  of  exchange,  etc.,  to  acknowledge  letters  punctually, 
and   to  follow  orders  exactly.     The  commission   varied   from   5 

84 


EXPORT  AND   IMPORT  HOUSES  85 

per  cent  of  the  value  of  the  goods  in  the  West  Indies  to  2  per  cent 
or  even  less  in  some  of  the  European  countries. 

From  that  time  to  the  present  the  commission  house  has 
promoted  the  free  exchange  of  the  commodities  of  one 
nation  for  those  of  others  by  keeping  up  a  world-wide  or- 
ganization, which  the  merchants  and  manufacturers  of 
every  nation  have  found  it  to  their  advantage  to  use  to  a 
greater  or  less  extent.  The  great  export  trade  of  both 
England  and  Germany  was  largely  developed  through 
these  agencies,  which  are  to-day,  despite  the  tendency  to 
eliminate  the  middleman,  no  inconsiderable  factor  in  inter- 
national trade. 

Services  of  Export  Commission  Houses. — A  large  part 
of  the  foreign  trade  of  the  United  States  has  been  developed 
through  export  commission  houses  located  at  New  York 
and  other  ports.  These  houses  may  be  purchasing  agents 
for  foreign  buyers  or  selHng  agents  for  American  products. 
The  largest  houses  have  business  connections  in  all  parts 
of  the  world,  while  others  confine  their  operations  to  one 
or  two  fields. 

The  commission  house,  handling  a  larger  volume  of  busi- 
ness than  the  individual  merchant  or  manufacturer,  and 
using  one  selling  organization  to  market  the  output  of 
many  manufacturers,  is  able  to  keep  the  selling  expense  at 
the  minimum.  Manufacturers  having  a  comparatively 
small  output  and  those  specializing  in  one  or  two  articles 
frequently  find  it  to  their  advantage  to  sell  through  com- 
mission houses.  Others  enter  the  foreign  field  through 
commission  houses,  and  later  develop  their  own  export 
sales  organization. 

The  following,  from  Westerfield's  Middlemen  in  Eng- 
lish Business,  gives  a  clear  idea  of  the  function  of  com- 
mission houses: 

A  commission  house  buys  and  sells  in  foreign  trade,  in  its  own 
name,  for  a  number  of  principals  a  variety  of  goods,  on  commission. 


86      FOREIGN  TRADE   OF   UNITED   STATES 

It  receives  the  goods  by  consignment  from  a  merchant  or  manu- 
facturer. It  is  intrusted  with  the  possessions,  control,  manage- 
ment, and  disposal  of  the  goods  sold.  It  does  business  in  its  own 
name,  but  on  the  account  and  at  the  risk  of  the  principal. 

These  houses  are  houses  of  reputation,  capital,  and  credit.  They 
allow  the  consignor  to  draw  on  them  for  a  large  per  cent  of  the  value 
of  the  goods  consigned,  immediately  upon  receipt.  Such  advances 
require  large  capital  on  the  part  of  the  consignee.  They  store  the 
goods,  sell  them  in  their  own  name,  and  guarantee  payments  of  the 
accounts  to  the  consignor.  They  carry  out  the  shipping  details, 
caring  for  lading,  shipping,  insurance,  commercial  papers,  etc. 
They  also  buy  goods  upon  order  from  foreign  houses,  and  finance 
and  ship  the  order,  collecting  the  outlay  from  the  consignee.  Their 
profits  arise  from  the  commission  paid,  interest  on  their  outlay, 
insurance,  profits,  etc. 

The  advantages  that  are  realized  by  a  foreign  firm  in  buying 
through  a  commission  house  are:  first,  that  all  orders  may  be  for- 
warded and  all  payments  made  to  one  person  instead  of  dealing 
with  various  firms;  and  that  likewise  all  shipments  are  received  on 
one  bill  of  lading;  and,  secondly,  that  larger  credit  is  likely  to  be 
got  from  a  commission  house,  it  being  acquainted  with  the  general 
condition  of  trade  and  having  wider  banking  connections.  .  .  . 
It  is  equally  advantageous  for  the  producer  to  dispose  of  his  goods 
through  the  commission  house,  for  the  house  carries  out  the  de- 
tails of  shipping  and  procures  lower  freight  rates  on  the  large  bulk 
shipments  than  can  be  had  on  the  small  quantities  the  manufacturer 
would  have  to  ship;  and,  further,  the  commission  house  is  a  home 
firm  whose  financial  strength  is  easily  investigated,  against  which 
suits  for  the  recovery  of  debts  are  made  according  to  home  laws, 
whereas  if  the  dealing  was  done  directly  by  the  producer,  collections 
would  be  made  abroad. 

The  obvious  disadvantages  engendered  in  the  dealing  through 
the  commission  house  are  that  the  house  handles  a  variety  of  goods 
and  is  not  specialist  in  any,  and  that  the  house  usually  wants  an 
exclusive  agency  for  the  principal,  and  the  granting  of  this  monopoly 
mav  result  in  limiting  the  market  for  the  principal's  goods. 

Different  Types  of  Export  Houses. — Some  export  com- 
mission houses  limit  their  sales  to  a  few  lines  of  goods  in  a 
few  markets;  others  accept  or  solicit  orders  for  practically 
every  commodity  that  caters  to  the  wants  of  man  and  carry 
on  business  in  every  part  of  the  world.     Some  are  old- 


EXPORT  AND   IMPORT  HOUSES  87 

established  houses  of  the  highest  standing,  which  possess 
abnost  unlimited  capital,  own  their  own  ocean-carriers, 
own  or  control  banking  institutions,  and  handle  millions 
of  dollars'  worth  of  business  annually.  Others  are  firms 
possessing  little  capital  and  experience,  struggling  side  by 
side  with  the  individual  manufacturer  to  secure  a  foothold 
in  the  markets  of  the  world.  It  is  only  by  careful  investi- 
gation that  the  standing  of  such  houses  can  be  determined. 
Banks  and  mercantile  agencies  are  the  best  sources  of  in- 
formation as  to  the  responsibihty  of  such  firms. 

Export  commission  houses  are  so  varied  in  type  that  it  is 
difficult  to  classify  them,  but  the  following  classification 
gives  a  fair  idea  of  their  activities. 

1.  Indent  houses — These  are  strictly  commission  houses, 
buying  goods  only  after  orders  have  been  received  for 
the  same.  They  deal  in  practically  every  coromodity 
in  any  quantity.  They  purchase  from  any  manufacturer 
offering  the  goods  at  the  best  prices.  Their  customers 
may  be  importing  houses  located  in  foreign  markets, 
wholesale  or  retail  firms,  or  individuals.  Orders  are  re- 
ceived either  through  foreign  branch  houses,  foreign  sales- 
men, or  by  direct  relations  with  the  foreign  buyers 
established  by  means  of  correspondence,  catalogues, 
advertising,  or  otherwise. 

2.  Commission  houses  or  trading  companies  which 
handle  all  products  they  can  place  in  the  foreign  field, 
charging  the  American  manufacturer  a  commission  for 
their  services.  Such  houses  sell  to  the  foreign  buyer  at 
the  manufacturer's  price,  receiving  their  commission 
from  the  seller  and  not  from  the  buyer.  This  commission 
covers  the  cost  of  documentation,  of  the  expenses  inci- 
dental to  shipping  the  goods,  of  financing  the  shipment, 
and  of  other  similar  expenses.  The  coromission  is  com- 
monly 5  per  cent,  though  it  may  be  as  low  as  2^  per 
cent,  or  as  high  as  10  per  cent.    These  firms  do  not 


88      FOREIGN  TRADE  OF   UNITED   STATES 

limit  their  services  to  any  group  of  manufacturers,  but 
reach  out  for  all  the  business  they  can  handle. 

3.  Merchant  houses  which  buy  from  manufacturers 
on  their  own  account  and  sell  to  their  customers  through 
branch  houses  or  established  agencies.  These  mer- 
chants do  not  operate  on  a  commission  basis.  They 
are  mercantile  establishments  buying  in  the  United 
States  and  selling  in  foreign  countries. 

Advantages  of  Selling  Through  an  Export  House.— The 

large  volume  of  business  transacted  by  the  oldest  estab- 
lished export  houses  gives  them  an  advantage  in  marine 
freight  rates  which  is  a  factor  in  their  success.  In  many 
instances  they  are  able  to  assemble  a  large  number  of  orders 
from  one  place  and  make  one  shipment  of  these,  with  re- 
sultant advantages  not  only  in  freight  and  transfer  charges, 
but  also  in  the  saving  of  the  cost  of  documentation  and 
other  incidental  items.  The  buyer  of  various  kinds  of 
goods  finds  it  to  his  advantage  in  many  cases  to  place  his 
order  v/ith  an  export  commission  house,  which  assembles 
the  goods,  packs  them  properly,  and  ships  them  on  one  bill 
of  lading  and  under  one  consular  invoice.  This  saves 
much  detail  work,  expedites  the  clearance  of  the  merchan- 
dise at  the  custom-house,  and  involves  the  minimum  ex- 
pense for  packing,  freight,  insurance,  consular  fees,  etc. 

The  larger  and  more  successful  export  commission  houses 
have  well-estabHshed  trade  relations  with  most  of  the  im- 
portant buyers  in  the  markets  in  which  they  transact  busi- 
ness; they  are  thus  in  close  touch  with  financial  and  trade 
conditions,  and  are  in  a  position  to  determine  with  consider- 
able accuracy  how  and  to  whom  credit  may  be  extended 
with  safety  and  how  large  a  quantity  of  a  given  commodity 
a  market  can  absorb.  Their  extensive  trade  connections, 
their  long  experience  in  the  foreign  field,  their  minute 
knowledge  of  the  difi  erent  conditions  and  requirements  of 
the  various  markets,  and  their  mastery  of  the  details  in- 


EXPORT  AND  IMPORT  HOUSES     89 

volved  in  making  export  shipments  all  enable  them  to 
carry  on  trade  with  the  minimum  of  friction  and  Iocs. 

Many  of  these  houses  were  pioneers  in  the  export  trade 
of  the  United  States.  It  is  estimated  that  more  than  half 
of  our  exports  to  countries  other  than  Europe  have  been 
sold  through  export  commission  houses.  The  extent  of 
the  business  thus  transacted  is  thus  seen  to  be  enormous. 
Their  methods  of  securing  business  in  foreign  markets 
and  of  handling  that  business  do  not  differ  materially 
from  those  used  by  other  large  firms  engaged  in  direct 
exporting.  The  larger  houses  have  a  complete  sales  or- 
ganization in  the  markets  in  which  they  seek  business 
and  all  have  representatives  in  the  ports  to  which  they 
ship  goods.  A  study  of  the  methods  used  by  large  manu- 
facturing firms  carr^dng  on  an  extensive  direct  export  trade 
gives  the  student  an  understanding  of  the  methods  that 
are  likewise  used  by  the  large  export  houses. 

Promoting  Trade  Through  Export  Houses. — While  oc- 
casional orders  may  be  obtained  through  export  commis- 
sion houses  with  Httle  effort  on  the  part  of  the  manufacturer, 
large  and  permanent  trade  is  not  so  easily  secured  through 
these  agencies.  Ordinarily,  it  is  necessary  for  the  manu- 
facturer to  co-operate  closely  and  continuously  with  the 
export  commission  house,  if  he  desires  to  extend  the  sale 
of  his  product  in  the  foreign  market  through  such  an  agency. 
This  co-operation  takes  the  form  of  advertising  in  foreign 
and  trade  papers,  of  a  judicious  distribution  of  catalogues, 
of  the  supplying  of  samples  where  practicable,  and  even,  in 
some  cases,  of  sending  salesmen  to  the  foreign  market  to 
assist  in  introducing  and  pushing  the  sale  of  his  goods.  A 
demand  is  thus  created  among  the  customers  of  the  ex- 
port cormnission  house  for  his  product,  ^vith  resultant  sales. 

Export  houses  not  infrequently  demand  the  exclusive 
agency  of  a  manufacturer's  product  in  one  or  more  foreign 
markets  before  they  will  agree  to  handle  his  business.  In 
return  for  the  granting  of  such  an  exclusive  agency,  they 


90      FOREIGN  TRADE  OF  UNITED   STATES 

agree  to  push  the  sales  of  his  product  to  the  exclusion  of 
similar  lines  of  other  manufacturers.  The  granting  of 
such  an  agency  binds  the  manufacturer  to  sell  only  through 
the  house  in  question  for  a  tenn  of  years.  Such  a  contract 
may  add  greatly  to  the  sales  of  a  manufacturer;  on  the 
other  hand,  it  may  prove  a  handicap  to  the  extension  of  the 
export  business  of  the  firm.  It  is  repeatedly  charged  that 
unscrupulous  houses  have  induced  manufacturers  to  grant 
exclusive  agencies  in  order  to  keep  their  goods  out  of  cer- 
tain markets.  By  living  up  to  the  letter  of  the  contract, 
they  are  able  to  bind  the  manufacturers  without  attempt- 
ing to  produce  a  satisfactory  volume  of  sales  for  their 
products.  Reputable  houses  of  long  standing  can  be 
depended  upon  to  carry  out  a  contract  in  all  fairness,  but 
otliers  have  taken  advantage  of  manufacturers  and  have 
thus  reflected  on  all  engaged  in  the  business. 

The  Handling  of  Staple  Products. — It  must  not  be  sup- 
posed that  the  business  of  the  export  commission  houses 
is  confined  to  the  handling  of  manufactured  articles.     On 
the  contrary,  the  bulk  of  their  trade  has  been  in  such  staple 
products  as  cotton,  wheat,  flour,  cottonseed,  petroleum, 
copper,  and  such  other  raw  materials  as  have  largely  entered 
into  our  foreign  trade.    They  still  hold  an  important  posi- 
tion in  the  exportation  of  such  commodities,  as  explained 
in  the  chapter  devoted  to  the  exportation  of  raw  materials 
and  foodstuffs,  though  the  tendency  in  recent  years  has 
been  to  place  the  handling  of  such  products  with  firms 
specializing  in  each,  or  to  export  them  directly,  as  in  the 
case  of  petroleum  and  its  products.     Much  flour  is  likewise 
now  exported  by  the  big  niilling  concerns  and  a  considerable 
portion  of  the  cottonseed  exported  is  now  sold  by  the  gin- 
ners  direct  to  foreign  buyers.     The  tendency  is  to  eliminate 
the  commission  house  wherever  the  volume  of  business  war- 
rants the  building  up  of  a  selling  organization  of  world- 
wide proportions. 

The    Export    Commission    House    in    Latin    American 
Trade. — It  is  stated  that  over  two-thirds  of  the  exports 


EXPORT  AND  IMPORT  HOUSES     91 

from  the  United  States  to  Latin  America  are  even  now 
handled  by  export  commission  houses,  located  for  the  most 
part  at  New  York,  New  Orleans,  and  San  Francisco.  In 
this  trade  the  export  house  often  has  a  very  important  func- 
tion, as  it  not  infrequently  acts  as  an  import  as  well  as  an 
export  agent.  In  various  Latin  American  trade  centres 
native  firms  of  long  standing  act  as  agents  for  the  owners 
of  plantations,  mines,  and  other  producing  properties, 
importing  from  the  United  States  and  other  countries  the 
supplies  needed  for  an  entire  season,  and  receiving  in  ex- 
change their  produce  to  be  marketed  abroad.  Such  a 
firm,  which  is  as  much  an  importing  as  exporting  house,  has 
connections  in  the  various  markets  with  export  houses, 
and  consigns  to  these  the  commodities  in  which  it  deals. 
The  New  York  or  New  Orleans  export  commission  house 
transacting  business  "^ith  such  a  concern  must  perforce 
be  an  importing  house  also.  It  receives  the  goods  thus 
consigned  to  it  and  sells  them  on  a  commission  basis.  Usu- 
ally it  sends  back  manufactured  or  other  products  to  the 
full  value  of  the  consignment.  These  are  purchased  out- 
right from  manufacturers  or  elsewhere,  and  are  packed  and 
shipped  to  the  Latin  American  importer,  who  pays  the 
usual  2j^  or  5  per  cent  commission  for  the  service.  The 
rubber  industry  of  Brazil  affords  an  excellent  example  of 
business  so  conducted,  the  entire  supplies  for  a  concession- 
aire and  his  employees  being  imported  by  a  ]Manaos  firm, 
who  later  receives  the  season's  crop  of  rubber  and  exports 
it,  usually  through  a  commission  house  in  New  York. 

The  part  taken  by  export  commission  houses  in  Latin 
American  trade  is  thus  described  by  a  recent  writer  on  the 
subject : 

Hitherto  it  has  cost  the  general  manufacturer  nothing  to  market 
his  goods  in  Latin  America  beyond  the  trifling  expense  of  publish- 
ing a  few  special  catalogues.  He  has  received  his  orders  from  the 
export  commission  houses  and  has  been  paid  prompt  cash  for  his 
goods  as  soon  as  they  have  been  placed  on  board  the  steamer  in 
New  York  or  other  ports  of  shipment.     He  has  also  been  relieved 


92       FOREIGN  TRADE  OF  UNITED   STATES 

to  a  great  extent  from  the  claims  from  foreign  buyers  when  the 
goods  shipped  are  of  inferior  quality  or  not  according  to  the  order, 
or  not  shipped  on  contract  time.  Since  the  buyer  looks  first  to  the 
commission  merchant,  and  holds  him  responsible  for  any  deviation 
from  his  contract  of  purchase,  the  export  commission  house  has 
shouldered  the  burden.  It  is  the  commission  merchant,  further- 
more, who  has  stood  all  the  expense  of  maintaining  agents  and  sales- 
men in  the  principal  commercial  centres  of  Latin  America,  of  send- 
ing special  travellers  from  time  to  time,  of  employing  experts  ac- 
quainted with  foreign  languages  to  attend  to  the  details  of  shipping, 
correspond^ce,  making  up  of  commercial  and  consular  invoices 
in  which  the  slightest  mistake  or  deviation  from  the  prescribed 
form  will  involve  heavy  fines  in  the  foreign  custom-houses,  who  ad- 
vances the  money  to  prepay  freight  and  ocean  charges,  and  who 
risks  his  capital  in  granting  the  long  credits  required. 

While  the  field  of  the  export  commission  house  is  nar- 
rowing from  year  to  year,  it  nevertheless  still  has  an  im- 
portant function  to  perform  in  the  United  States  as  well 
as  in  the  United  Kingdom  and  Germany,  where  it  is  even 
more  strongly  intrenched  than  it  is  here. 

BIBLIOGRAPHY 

FiLSiNGER,  E.  B.     Exporting  to  Latin  America.    New  York,  1916. 
Hough,  B.  O.     Practical  Exporting.    New  York,  191 5. 
Shaw,  A.  W.     Some  Problems  in  Market  Distribution.     1915. 
Westerfield,   R.    B.     The   Factor  and  the   Commission  Houses. 

(In  his  Middlemen  in  English  Business.)     1915,  pp.  354-361. 
Commission  House  in  Latin  American  Trade.     Quarterly  Journal 

of  Economics,  vol.  26,  pp.  118-139.     November,  1911. 
The   Compradore :    His  Position  in  the  Foreign  Trade  of  China. 

Economic  Journal,  vol.  21,  pp.  636-641.     December,  191 1. 
Doing  Business  Through  Commission  Houses.     (In  U.  S.  Bureau  of 

Foreign  and  Domestic  Commerce.     Export  Trade  Suggestions. 

Miscellaneous  series  no.  35.)     1916. 
Export  Merchants.     (In  U.  S.  Bureau  of  Foreign  and  Domestic 

Commerce.     German    Foreign    Trade    Organization.     Miscel- 
laneous series  no.  57.)     191 7,  PP-  14-16. 
Marketing  Agencies  Between  Manufacturer  and  Jobber.     Quarterly 

Journal  of  Economics,  vol.  31,  pp.  571-599.    August,  1917. 


CHAPTER  VIII 

THE  EXPORTATION  OF  RAW  MATERIALS  AND 

FOODSTUFFS 

Methods  in  General.— The  methods  used  in  the  exporta- 
tion of  raw  materials  and  foodstuffs,  collected  from  the 
farms,  forests,  and  mines  of  the  nation,  differ  radically 
from  those  employed  in  the  sale  of  manufactured  products. 
Such  commodities  do  not  meet  in  foreign  markets  the  keen 
competition  found  in  the  case  of  manufactures;  as  a  rule 
they  are  eagerly  sought  by  the  populous  manufacturing 
and  commercial  nations  that  depend  upon  other  countries 
for  the  food  and  raw  materials  needed  to  nourish  their 
population  and  supply  their  factories  with  the  materials 
essential  to  industry.  No  extensive  sales  organization  for 
the  marketing  of  such  products  need  be  maintained  in 
foreign  countries.  Cotton,  grain,  and  other  commodities 
are  sold  to  foreign  purchasers  largely  through  operations 
conducted  by  dealers  having  connections  in  foreign  markets. 
Prices  are  quoted  and  contracts  for  delivery  are  made  by 
cable.  Brokers  not  infrequently  maintain  offices  in  the 
great  world  markets,  and,  where  practicable,  sell  from 
sample  as  directed  by  their  principals.  On  the  other  hand, 
large  foreign  buyers  often  send  their  agents  here  to  contract 
for  their  supplies. 

In  any  case,  there  is  little  or  no  direct  exporting  by  the 
producer,  unless  the  product  is  one  controlled  by  a  few 
great  corporations,  as  in  the  case  of  petroleum.  The 
product  leaves  the  hands  of  the  producer  long  before  it 
reaches  the  foreign  buyer,  who  ahnost  invariably  purchases 
it  from  brokers  or  agents  of  large  dealers  who  have  secured 

93 


94      FOREIGN   TRADE   OF   UNITED   STATES 

it  more  or  less  directly  from  its  original  owner.  It  is  a 
well-recognized  fact  that  our  foodstuffs  and  raw  materials 
pass  through  too  many  hands  before  they  reach  the  con- 
sumer, and  that  the  organization  of  middlemen  that  has 
been  built  up  has  become  a  burden  alike  to  producer  and 
consumer.  The  middleman  undoubtedly  has  a  place  in 
production  and  distribution,  but  only  when  he  serves  a 
useful  and  necessary  purpose.  The  methods  by  which  the 
various  raw  products  are  collected  and  distributed  are  best 
understood  by  considering  the  most  important  in  some  de- 
tail. As  a  rule  the  producer  does  not  know  whether  his 
product  is  to  be  consumed  at  home  or  exported.  He  sells 
it  to  practically  the  same  agencies  in  either  case,  and  it  is 
not  sold  to  foreign  buyers  until  it  has  been  concentrated 
in  great  quantities  in  the  hands  of  a  few  big  dealers.  As 
our  most  important  agricultural  export  is  cotton,  it  will  be 
considered  first. 

Cotton. — Little  American  cotton  passes  directly  from  the 
grower  to  English  or  other  spinners.  The  greater  part  of 
the  6,000,000  bales  annually  exported  passes  through  from 
two  to  six  agencies  between  the  grower  and  the  spinner. 
These  are  successively  the  local  storekeeper,  the  local  cot- 
ton merchant,  the  buyer  of  one  of  the  great  cotton  mer- 
chants of  the  central  markets,  the  exporter,  the  English 
importer,  the  English  broker,  the  spinner's  agent,  and 
finally  the  spinner. 

Numerous  variations  may  occur  in  the  process,  with  the 
elimination  of  one  or  several  of  the  agencies  enumerated. 
For  instance,  the  farmer  may  sell  not  to  the  local  store- 
keeper but  to  the  local  cotton  merchant  or  to  agents  of 
the  great  cotton  merchants  of  the  primary  markets.  Large 
growers  may  even  consign  their  cotton  to  commission  houses 
located  at  the  principal  ports.  Again,  the  local  storekeeper 
may  eliminate  the  local  merchant  and  also  the  buyers  of 
larger  houses,  and  may  sell  direct  to  English  buyers  or 
other  importers. 


RAW  MATERIALS  AND   FOODSTUFFS       95 

The  method  used  by  the  grower  depends  largely  upon  his 
financial  condition.  Those  methods  most  commonly  used 
fall  under  three  heads,  as  follows : 

1.  Method  used  by  the  small  farmer  who  needs  credit. 

2.  Method  employed  by  the  farmer  able  to  finance 
himself. 

3.  Method  in  vogue  on  large  plantations. 

1.  The  cotton  farmer  is  usually  in  debt,  and  he  finds  it 
necessary  to  contract  to  sell  his  crop  to  the  local  store- 
keeper, from  w^hom  he  obtains  his  groceries  and  necessary 
supplies  on  credit.  As  a  rule  such  credit  is  extended  to 
40  or  50  per  cent  of  the  estimated  value  of  the  crop.  In- 
terest is  charged  on  the  account  and  high  prices  are  the 
rule.  As  the  raw  cotton  is  picked,  the  farmer  brings  it  to 
the  storekeeper,  before  it  is  ginned.  When  he  has  delivered 
his  entire  crop,  the  merchant  makes  up  his  account,  credit- 
ing or  paying  the  farmer  for  the  balance  due  him.  There 
is  no  system  of  grading;  the  farmer  is  seldom  an  expert 
judge  of  his  owti  product;  consequently,  he  is  never  paid 
the  highest  price,  but  usually  receives  the  price  of  medium 
or  low  grade  cotton.  The  storekeeper  himself  is  not 
the  best  judge  of  cotton;  he  has  to  grade  down  in  order  to 
protect  himself.  He  sells  to  local  cotton  merchants  or 
to  cotton  buyers  representing  la^ge  cotton  dealers;  very 
rarely  he  sells  to  spinners'  agents. 

2.  Not  all  cotton-growers  find  it  necessary  to  obtain 
credit  from  the  local  store  to  tide  them  over  until  their 
crop  is  marketed.  In  such  cases,  the  grower  takes  his 
cotton  to  the  gin,  where  the  seed  is  removed  and  the 
cotton  is  baled.  Then  he  disposes  of  it  just  as  the  local 
storekeeper  disposes  of  the  cotton  he  secures;  that  is,  he 
sells  it  to  the  local  cotton  merchant  or  to  a  buyer  represent- 
ing the  big  dealers  or  spinners.  If  the  price  is  low,  the  in- 
dependent farmer  may  store  his  cotton  in  the  local  ware- 


96       FOREIGN  TRADE   OF  UNITED   STATES 

house  owned  by  the  local  cotton  merchant,  to  be  sold  later 
by  the  latter  on  a  commission  basis.  While  the  farmer 
who  is  able  to  finance  himself  reaps  a  greater  reward  for 
his  labor,  his  cotton,  nevertheless,  passes  through  many 
hands  before  it  reaches  the  domestic  or  foreign  spinner. 

3.  The  large  plantations  are  mostly  owned  by  corpora- 
tions or  syndicates,  which  rent  their  land  in  small  parcels 
to  poor  cotton-growers,  either  for  a  fixed  rental  or  on  a 
percentage  or  ''share"  basis.  The  corporation  almost 
invariably  owns  a  general  store,  which  extends  credit  to 
the  tenant  for  his  season's  supplies.  It  likewise  owns  a 
gin.  When  the  cotton  is  picked,  the  grower  delivers  it 
to  the  store  or  gin,  as  the  case  may  be,  and  receives  whatever 
price  may  be  determined  upon  by  the  company  buyer. 
That  the  price  is  not  the  highest,  goes  without  saying. 
After  his  account  is  settled,  the  grower  too  often  finds  that 
he  has  not  enough  money  left  to  buy  food  and  clothing  for 
the  winter,  but,  as  he  has  no  other  resource,  he  continues 
year  after  year  in  the  same  unprofitable  grind. 

It  is  generally  conceded  that  the  farmers  of  the  Southern 
cotton-producing  States,  who  raise  the  bulk  of  the  world's 
supply,  seldom  or  never  receive  their  just  returns  for  their 
crop.  The  following  statement,  taken  from  the  United 
States  Department  of  Agriculture  Yearbook  for  191 2,  de- 
scribes the  situation: 

Present  methods  of  distribution  of  many  agricultural  products 
are  indirect,  wasteful,  expensive,  and  even  destructive.  In  this 
respect  cotton  suffers  fully  as  much  as  any  other  crop.  A  complex 
commercial  mechanism  has  been  developed,  many  elements  of 
which  are  distinctly  not  in  the  interest  of  the  producer,  the  manu- 
facturer, or  the  ultimate  consumer.  It  is  not  too  much  to  say  that 
our  present  method  is  susceptible  of  a  great  deal  of  improvement 
at  every  step  from  field  to  factory.  It  has  been  estimated  by 
close  students  of  the  question  that  the  present  slipshod  and  wasteful 
system  entails  an  annual  loss  to  the  growers  of  from  $25,000,000  to 
$70,000,000.  It  is  impossible  to  do  more  than  approximate  the 
total  loss,  but  it  is  certainly  exceedingly  large. 


RAW  MATERIALS  AND  FOODSTUFFS       97 

There  are  two  well-defined  tendencies  in  tlie  cotton- 
producing  sections  that  promise  better  marketing  conditions 
for  the  future.  The  first  is  for  the  cotton  manufacturer, 
both  domestic  and  foreign,  to  buy  direct  from  the  cotton- 
grower,  or  at  least  from  the  local  merchant  who  buys 
either  from  the  grower  or  from  the  storekeeper.  Thus 
brokers,  factors,  and  dealers  are  eliminated.  The  other 
movement  is  for  co-operative  selling  by  the  producers. 
The  Yearbook  of  the  Department  of  Agriculture  for  191 2 
cites  several  examples  of  successful  co-operative  cotton- 
growers'  associations.  The  growers  of  Montgomery,  Ala., 
have  constructed  a  gin  and  started  a  general  store,  where 
members  receive  credit.  Warehouse  facilities  are  also 
provided,  w^here  the  cotton  may  be  stored  when  the  mar- 
ket conditions  are  bad.  This  association  sells  both  to 
domestic  and  foreign  buyers,  though  the  greater  part  of 
the  output  is  sold  directly  to  Liverpool  agents  of  English 
spinners.  At  Greenwood,  Miss.,  a  group  of  farmers 
organized  a  cotton  buying  and  selling  company;  they  han- 
dle their  own  output  and  that  of  other  farmers  who  care 
to  sell  to  them.  The  cotton-growers  of  Lnperial  Valley, 
Cal.,  some  years  ago  organized  along  the  lines  of  the 
Citrus  Growers'  Association  of  California,  w^hich  so  effi- 
ciently markets  that  product.  An  exchange  and  a  bank 
were  organized  and  warehouse  facilities  provided.  WTien 
the  cotton  is  ready  for  market,  it  is  ginned  and  placed  in 
the  association  warehouse,  where  it  is  graded  by  an  expert. 
Then  warehouse  certificates  are  issued  to  the  owners,  upon 
which  a  loan  may  be  obtained  at  the  bank.  While  in  the 
warehouse  the  cotton  is  insured.  When  the  price  is  favor- 
able, the  cotton  is  sold  through  a  broker  to  manufacturers 
or  to  cotton  merchants,  preferably  to  the  former.  The 
exchange  and  bank  are  not  now  directly  controlled  by  the 
growers.  W^ith  the  general  adoption  of  some  such  system, 
direct  exporting  of  cotton  by  producers  through  their  as- 
sociation would  replace  the  methods  now  in  vogue,  whereby 


98      FOREIGN  TRADE  OF  UNITED   STATES 

some  half-dozen  middlemen  take  their  toll  from  each  sea- 
son's crop. 

Export  cotton  is  shipped  from  the  various  local  markets 
either  to  central  markets  of  the  interior  or  to  the  ports  of 
shipment  direct.  At  large  shipping-points  the  cotton  is 
compressed  so  as  to  reduce  its  bulk  one-half.  From  the 
compress  points  export  cotton  may  be  shipped  on  a  through 
bill  of  lading  to  the  foreign  point  of  destination. 

English  spinners  purchase  their  American  cotton  in  three 
ways: 

1.  Through  buyers  sent  to  the  United  States  for  that 
purpose. 

2.  From  the  Manchester  or  Liverpool  branch  of  an 
American  cotton  merchant. 

3.  From  English  importers  or  brokers  representing 
import  houses. 

Havre  is  the  great  French  cotton-market.  American 
cotton  is  sold  there  by  American  exporters  either  to  im- 
port houses  or  to  cotton  merchants,  through  brokers. 
American  cotton  sold  to  Germany  between  190c  and  19 14 
was  shipped  to  great  import  houses  at  Bremen  or  Hamburg, 
which  sold  to  German  and  other  spinners.  There  was  some 
direct  importing  of  raw  cotton  by  spinners. 

In  1 91 4  over  37  per  cent  of  the  raw  cotton  exported  went 
to  the  United  Kingdom,  30  per  cent  to  Germany,  and  12 
per  cent  to  France.  From  80  to  85  per  cent  of  cotton  ex- 
ports are  shipped  from  the  Southern  and  Gulf  ports,  Galves- 
ton leading  with  over  two-thirds  of  the  total,  with  New 
Orleans  and  Savannah  next  in  importance. 

The  price  of  cotton,  as  well  as  of  grain  and  other  farm 
products,  is  influenced  or  determined  by  operations  con- 
ducted on  the  great  exchanges.  These  are  corporations, 
organized  to  promote  the  buying  and  selling  of  certain 
commodities  by  their  members.  The  trading  is  not  done 
by  the   exchange  but  by  the  individual  members.    The 


RAW  MATERIALS  AND  FOODSTUFFS      99 

two   great   speculative   cotton  exchanges  of   the   United 
States  are  those  at  New  York  and  New  Orleans.    A  com- 
paratively small  amount  of  actual  or  spot  cotton  is  bought 
or  sold  on  the  New  York  exchange,  though  New  Orleans 
is  a  spot  as  well  as  a  speculative  market.     Liverpool  is  the 
great  cotton  exchange  of  England.     Many  States  of  the 
cotton  belt  have  enacted  laws  prohibiting  the  sale  of  cot- 
ton futures.    It  is  worth   emphasizing  that   cotton  ex- 
changes were  in  their  origin  primarily  associations  of  mer- 
chants  and  were  intended   to  facilitate  the  business  of 
such  merchants.    Although  spinners  (the  consumers)  and 
planters  and  growers  (the  producers)  are  sometimes  mem- 
bers of  exchanges,  the  basis  of  such  organization  is  the 
cotton  merchant.    The  merchant  is  a  dealer  in  actual 
cotton.     He  may  buy  either  directly  from  the  grower  or 
from   so-called   interior   merchants,    who   are   practically 
storekeepers   and  who   collect   cotton  directly  from   the 
grower.     Such  a  merchant,  it  may  be  noted,  is  generally 
spoken  of  in  the  trade  as  a  "buyer,"  the  term  having  a 
technical    sense.    Other    cotton   merchants    who    receive 
cotton  on  consignment  to  be  sold  on  a  commission  basis 
are  known  as  "factors."    They  sell  their  cotton  to  cotton 
"buyers"  and  seldom  directly  to  spinners.    There  are  thus 
two  sets  of  middlemen.     The  number  of  factors,  it  may  be 
noted,  has  decreased  heavily  in  recent  years.     A  cotton 
exchange  also  includes  a  great  many  brokers  who  may  not 
handle  actual  cotton  at  all,  but  who  simply  act  as  agents 
for  other  interests,  particularly  for  spinners,  merchants,  or 
speculators,  either  in  the  purchase  or  sale  of  spot  cotton 
or  of  future  contracts.    Many  brokers,  it  may  be  noted, 
deal  exclusively  in  contracts  and  have  nothing  to  do  with 
spot  cotton,  while  so-called  spot  brokers  frequently  have 
nothing  to  do  with  future  contracts.     Many  speculators, 
particularly    those    conducting   extensive   operations,    are 
members  of  cotton  exchanges,   as  this  entitles  them   to 
lower  rates  of  brokerage  and  to  other  advantages  not  avail- 


loo     FOREIGN  TRADE  OF  UNITED  STATES 

able  to  outsiders.  Of  course  any  one  of  the  interests 
named  may  exercise  the  functions  of  another.  Thus,  a 
merchant  may  act  as  a  broker  or  he  may  be  a  heavy  specu- 
lator. A  speculator  in  turn  may  be  interested  in  the 
ownership  of  mills  as  a  spinner. 

The  proper  and  professed  functions  of  a  cotton  exchange 
may  be  briefly  enumerated  £ls  follows; 

1.  The  maintenance  of  suitable  facilities  for  the  con- 
duct of  business  by  its  members. 

2.  The   adoption   of   rules   and   regulations   for   the 
conduct  of  such  business. 

3.  The  collection  and  dissemination  of  useful  informa- 
tion. 

4.  The  maintenance  of  just  and  equitable  principles 
in  the  trade. 

The  system  of  future  trading  in  cotton  and,  for  that 
matter,  in  other  staple  products  similarly  dealt  in,  is  based 
on  contracts  on  the  part  of  the  seller  to  deliver,  and,  con- 
sequently, on  the  part  of  the  buyer  to  receive,  at  a  time 
subsequent  to  the  making  of  the  contract,  a  certain  quan- 
tity of  the  product  at  a  stipulated  price.  So  far  as  the 
operation  of  the  contract  is  concerned,  it  is  immaterial 
whether  or  not  the  seller,  at  the  time  the  contract  is  en- 
tered into,  has  the  product  in  his  possession,  and,  in  fact, 
the  term  "futures"  is  very  generally  associated  with 
transactions  made  at  a  time  when  the  seller  does  not  actu- 
ally have  the  product  on  hand.  In  this  case  he  is,  in  the 
language  of  the  trade,  ''selling  short,"  relying  on  his  ability, 
before  the  maturity  of  his  contract,  to  obtain  the  product 
which  he  has  thus  contracted  to  deliver  or  to  purchase 
another  contract  to  offset  the  one  thus  sold.  A  future  con- 
tract is,  however,  quite  as  properly  such  in  cases  where 
the  seller  has  the  goods  on  hand  at  the  time  of  entering 
into  the  contract,  provided  the  delivery  is  set  for  some  future 


RAW  MATERIALS  AND   FOODSTtJFFS     :ipr\u}\\ 

date.  A  ^'future"  differs  from  a  ''spot"  transaction  in 
that  the  latter  invariably  represents  goods  actually  on 
hand  or  instantly  available  at  the  time  the  contract  is 
made,  and,  moreover,  contemplates  an  immediate  or  an 
approximately  immediate  delivery.* 

Cotton  and  other  exchanges  afford  legitimate  merchants 
the  opportunity  of  msuring  themselves  against  loss  through 
fluctuations  in  prices  by  hedging,  which  is  the  offsetting 
of  real  transactions  by  speculative  ones.  Thus  cotton 
merchants,  manufacturers,  or  exporters  buying  large  quan- 
tities of  cotton  for  which  there  is  no  immediate  market 
protect  themselves  against  a  fall  in  prices  by  selling  con- 
tracts for  future  deHvery.  Then  if  the  price  of  cotton  falls, 
the  merchant,  though  losing  on  the  actual  cotton  he  has 
purchased,  gains  an  equal  amount  on  the  transaction  in 
futures. 

Similarly,  the  speculative  market  may  be  used  by  cotton 
merchants  or  brokers  who  make  contracts  with  spinners 
for  the  actual  delivery  of  a  specified  number  of  bales  of 
cotton  at  a  fixed  price  at  a  future  date.  Such  contracts 
are  frequently  made  before  the  cotton  is  available.  If  the 
price  goes  up  before  the  merchant  or  broker  obtains  the 
cotton  he  has  agreed  to  deliver,  he  will  lose  unless  he  hedges. 
He  does  this  by  buying  on  the  exchange  cotton  futures  for 
deHvery  at  the  specified  dates.  Then  if  the  price  advances, 
he  loses  on  the  actual  cotton  he  must  purchase  and  deliver 
to  the  spinner,  but  he  gains  correspondingly  on  the  cotton 
futures  he  purchased.  The  speculative  market  thus  be- 
comes an  insurance  against  loss  in  legitimate  business 
transactions. 

Wheat. — The  exportation  of  wheat  is  mostly  in  the 
hands  of  the  great  grain  dealers  that  control  lines  of  eleva- 
tors found  in  every  big  producing  section.  Following  the 
harvest,  the  farmers  haul  their  grain  to  the  local  markets 

*  United  States  Bureau  of  Corporations:  Report  on  Cotton  Exchanges ^ 
part  I,  1908. 


102    FOREIGN  TRADE   OF   UNITED   STATES 

in  two,  four,  or  six  horse  wagons,  or  in  motor- trucks,  some 
of  them  especially  constructed  for  this  purpose  and  known 
as  grain-tanks.  In  these  local  markets  the  farmer  either 
stores  the  wheat  in  a  storage  elevator  or  sells  it  to  one  of 
the  elevator  companies.  The  elevators  are  owned  either 
by  local  grain  dealers  or  by  the  corporations  owning  ex- 
tensive elevator  lines  and  having  headquarters  in  such 
primary  markets  as  Chicago  or  Minneapolis.  In  some 
cases  a  number  of  farmers  form  a  co-operative  association, 
build  their  own  elevator,  and  hold  their  grain  until  market 
conditions  seem  most  favorable.  Such  an  association 
usually  maintains  an  agent  at  one  of  the  primary  markets, 
who  eventually  makes  the  sale  to  one  of  the  big  grain 
dealers  located  there.  There  is  some  competition  between 
the  local  grain  dealer,  who  buys  from  the  farmers  only  to 
sell  again  to  the  big  dealers  or  to  the  milling  companies, 
and  the  line  elevator  companies,  which  not  infrequently 
enables  the  producer  to  receive  more  for  his  crop  than  would 
otherwise  be  the  case.  The  dealers  controlling  the  line 
elevators  often  send  buyers  out  to  the  farms  during  or 
after  the  threshing  season  to  negotiate  with  the  farmers  for 
the  sale  of  their  wheat;  their  success  depends  upon  the 
price  offered  and  upon  the  farmers'  need  of  immediate  re- 
turns for  their  crop.  If  the  farmers  believe  that  the  price 
is  going  up,  they  may  store  their  wheat  in  elevators  at  a 
fixed  price  per  month,  and  borrow  from  80  to  90  per  cent 
of  its  market  value  from  the  local  bankers,  putting  up 
their  elevator  receipts  as  collateral. 

Whatever  the  immediate  method  employed  by  the 
farmer  in  the  disposal  of  his  crop,  that  for  export  eventually 
comes  into  the  possession  either  of  the  big  milling  companies 
or  the  big  grain  dealers  located  in  the  primary  markets. 
It  is  then  exported,  either  as  wheat  or  as  flour,  as  the  case 
may  be.  MinneapoHs  is  the  greatest  flour-milling  city  of 
the  continent.  It  is  situated  in  the  heart  of  the  wheat- 
producing  country,  and  has  unlimited  power  supplied  by 


RAW  MATERIALS  AND   FOODSTUFFS      103 

the  Falls  of  St.  Anthony.     Flour  exported  from  Minneapolis 
goes  mostly  by  rail  to  the  Atlantic  ports. 

The  greatest  wheat-market  is  Chicago,  where  millions 
of  bushels  of  wheat  are  assembled  and  distributed  each 
year.  Duluth,  Kansas  City,  St.  Louis,  and  Milwaukee 
are  other  grain  centres.  Export  wheat  flows  from  the  pro- 
ducing regions  of  the  Northwest  in  three  general  directions, 
east,  west,  or  south.  The  eastern  channel  is  by  way  of 
the  great  lakes,  or  the  railroads  paralleling  the  lakes,  to 
Montreal  or  New  York  or  other  Atlantic  ports.  The 
southern  route,  taken  by  the  wheat  of  Kansas,  southern 
Illinois,  Oklahoma,  and  Texas,  finds  its  outlet  at  New 
Orleans  or  Galveston.  The  wheat  of  the  Northwest — 
Washington,  Oregon,  Idaho,  and  western  Montana — ^is 
shipped  to  Portland  or  to  the  Puget  Sound  ports.  Cali- 
fornia wheat  intended  for  export  is  assembled  at  San  Fran- 
cisco. Most  of  the  wheat  shipped  from  the  Pacific  coast 
ports  goes  to  England,  though  a  part  of  it  is  sent  to  the 
Orient.  Pacific  coast  wheat  is  handled  in  sacks  instead  of 
in  bulk,  as  it  is  shipped  in  cargo  lots,  and  there  is  danger 
of  a  xuU  cargo  of  grain  shifting.  Grain  warehouses  instead 
of  elevators  prevail  in  this  region.  Most  of  the  ware- 
houses are  provided  with  conveyers,  operated  by  steam  or 
electricity,  for  handling  the  sacks  and  loading  them  on 
shipboard. 

While  some  Pacific  coast  wheat  is  handled  by  various 
co-operative  growers'  associations,  which  have  agents  at 
the  ports  who  sell  to  exporters,  most  of  the  wheat  for  ex- 
port is  purchased  directly  from  the  growers  by  agents  of 
the  big  wheat  companies,  w^hich  export  only  a  part  of  what 
they  buy.  These  firms  have  close  trade  connections  with 
buyers  at  European  markets,  maintaining  representatives 
there.  The  wheat  is  usually  sold  before  it  is  shipped,  fre- 
quently before  it  is  purchased  from  the  farmers.  The 
journey  from  San  Francisco  to  Liverpool  in  the  ordinary 
saiKng  vessel  consumes  four  or  five  months,  and  if  the  wheat 


I04     FOREIGN  TRADE   OF   UNITED   STATES 

were  not  sold  before  shipment,  price  fluctuations  might 
be  so  great  as  to  cause  heavy  losses.*  The  exporter  pays 
the  marine  insurance  and,  after  the  consignment  is  de- 
livered at  its  destination,  the  ocean  freight.  However, 
prices  quoted  in  England  for  cargoes  of  Pacific  coast  wheat 
"to  arrive,"  regularly  include  ocean  freight  and  marine 
insurance,  so  the  exporter,  in  drawing  upon  the  European 
buyer,  must  deduct  in  his  draft  the  amount  to  be  paid 
for  ocean  freight.  After  the  buyer  examines  the  wheat  on 
its  arrival  in  England,  if  he  is  not  satisfied  with  the  grade, 
he  may  appoint  an  arbitrator  and  call  upon  the  seller  to 
appoint  another,  the  two  having  power  to  choose  a  third. 
The  board  thus  chosen  decides  the  matter  in  controversy. 
Shipments  to  Europe  are  frequently  made  to  a  port  of  call. 
Sailing  vessels  are  often  chartered  to  go  to  Falmouth, 
Queens  town,  or  Plymouth,  in  the  British  Isles,  where  or- 
ders are  given  as  to  final  destination.  For  steamships  the 
port  of  call  is  usually  St.  Vincent,  in  the  Cape  Verde  Islands, 
or  Gibraltar. 

Cattle. — Cattle,  which  were  formerly  exported  on  the 
hoof  in  great  cattle-boats,  now  reach  the  foreign  mc^rket 
in  the  form  of  dressed  beef,  or  of  dried  or  canned  meat. 
Cattle  for  export  are  sold  in  the  same  way  as  those  for 
domestic  consumption.  The  cattle  are  shipped  from  the 
great  ranches  of  the  West  to  the  cattle-markets  of  Chicago, 
Kansas  City,  Omaha,  and  Minneapolis,  which  are  also 
the  great  meat-packing  centres.  Here  they  are  placed  in 
the  stock-yards,  where  brokers  or  representatives  of  the 
leading  meat-packing  concerns  purchase  them  at  the 
market  price.  There  are  also  cattle  buyers  in  nearly  every 
State,  whose  business  it  is  to  purchase  from  the  farmers 
having  only  a  few  head  of  stock  for  sale  each  year.  These 
are  assembled  and  shipped  in  car-load  lots  to  the  central 
markets  and  handled  in  the  same  way  as  the  range  cattle. 

*  United  States  Department  of  Agriculture.  Bureau  of  Statistics, 
Bulletin  no.  89. 


RAW  MATERIALS  AND   FOODSTUFFS     105 

Cattle  are  thus  sold  by  the  producer  either  directly  to  the 
meat-packing  concerns  which  control  this  industry  or  to 
a  middleman  or  broker  who  sells  to  these  concerns. 

The  refiigerator-car,  which  came  into  general  use  in  the 
late  seventies,  has  made  it  possible  to  centraKze  the  slaugh- 
tering and  meat-packing  industries  at  a  few  points,  where 
cattle  are  shipped  alive  from  the  range  or  from  the  farm. 
Ocean  steamers  have  refrigerator-rooms  in  which  the  chilled 
or  frozen  meat  is  conveyed  to  the  European  markets. 

Swine  and  sheep  exported  are  handled  in  the  same  way 
as  cattle.  The  surplus  of  food  animals  for  export  is  de- 
creasing as  the  area  of  the  rangeland  decreases,  though,  with 
a  fair  price  insured  and  favorable  marketing  conditions, 
fanners  could  and  would  greatly  increase  the  production 
of  cattle  and  other  farm  animals.  As  the  number  of  cattle 
on  the  ranges  decrease,  the  number  produced  on  farms 
and  fed  on  alfalfa  and  other  field  crops  can  be  made  to 
correspondingly  increase.  There  is  no  doubt  that  the  dis- 
couraging conditions  in  regard  to  transportation  and  prices 
that  the  cattlemen  have  experienced  in  the  past  has  had 
much  to  do  with  the  comparative  decline  in  this  industry. 

Tobacco. — Over  one-third  of  the  tobacco  of  the  world 
is  grown  in  the  United  States,  and  about  one-third  of  this 
is  produced  in  the  single  State  of  Kentucky.  Louisville, 
Ky.,  is  the  greatest  tobacco-market  in  the  world.  As 
tobacco  is  a  crop  requiring  much  labor,  it  is  usually  grown 
by  fanners  in  comparatively  small  quantities  in  conjunc- 
tion with  other  crops,  and  not  on  great  plantations  as  under 
the  old  system  of  slave  labor. 

About  one- third  of  the  crop,  or  350,000,000  pounds,  is 
exported,  either  by  dealers,  exporting  houses,  or  the  agents 
of  foreign  buyers.  The  United  Kingdom  has  been  the 
biggest  buyer,  wdth  Germany  next.  Tobacco  is  exported 
in  casks  or  hogsheads,  weighing  on  the  average  1,000 
pounds,  or  in  bales  weighing  about  120  pounds. 

A  large  part  of  Southern  tobacco  is  sold  at  auctions  held 


io6     FOREIGN  TRADE   OF   UNITED   STATES 

in  the  local  markets.  The  growers  haul  the  tobacco  to  the 
nearest  market  and  place  it  in  public  warehouses,  where 
each  lot  is  weighed  and  tagged,  and  auctioned  off  to  the 
highest  bidder,  the  grower  reserving  the  right  to  reject 
all  bids.  The  auctions  are  operated  under  state  and  local 
regulations.  Some  tobacco  is  delivered  b}'  the  grower 
packed  in  hogsheads.  This  is  called  ''prized"  tobacco, 
and  is  sold  by  sample. 

Not  all  tobacco  is  sold  at  auctions.  Part  of  the  Southern 
crop  and  practically  all  of  that  grown  in  the  North  is  sold 
at  private  sale,  either  at  the  farms  or  after  being  hauled 
to  the  local  market.  The  buyers  of  tobacco  for  export 
may  be  representatives  of  large  tobacco  exporters,  or  may 
be  dealers  who  later  sell  to  exporters.  Foreign  manufac- 
turers sometimes  send  buyers  to  the  United  States  who  buy 
either  from  the  growers  or  from  dealers.  Some  of  the  big 
tobacco  manufacturers  export  raw  as  well  as  manufactured 
tobacco.  The  consolidation  of  the  tobacco-manufacturing 
industry  has  decreased  the  number  of  buyers  in  Louisville 
and  elsewhere. 

Even  free-trade  England  levies  a  tariff  on  tobacco  im- 
ported, the  object  being  to  produce  revenue.  The  broker 
or  manufacturer  importing  the  tobacco  has  it  placed  in  a 
bonded  warehouse,  thus  avoiding  the  pa3mient  of  the  duty 
until  he  is  ready  to  use  the  tobacco.  It  usually  remains 
two  years  in  this  warehouse,  as  a  reserve  supply  in  case 
of  crop  failure  is  thus  assured,  and  the  tobacco  is  improved 
by  seasoning. 

BIBLIOGRAPHY 

BuRZETT,  C.  W.     Cotton— Its  Cultivation,  Marketing^  and  Manu- 
facture.   New  York,  1916. 
CoPELAND,  Melvil  T.     The  Cotton  Manufacturing  Industry  of  the 

United  States.     Chapter  7.     Cambridge,  191 2. 
Critchell,  James  T.,  and  Raymond,  Joseph.    A  History  of  the 

Frozen-Meat  Trade.     Chicago,  191 2. 
DoNDLiNGER,  P.  T.     The  Book  of  Wheat,    New  York,  1916. 


RAW  MATERIALS  AND   FOODSTUFFS      107 

Edgar,  W.  C.     The  Story  of  a  Grain  of  Wheat.     New  York,  1903. 

Heylin,  N.  B.  Buyers  and  Sellers  in  the  Cattle  Trade.  Phila- 
delphia, 1 913. 

Jacobstein,  Meyer.  The  Tobacco  Industry.  (Columbia  Univer- 
sity studies  in  history,  economics,  and  public  law,  vol,  26,  no,  3.) 

KiLLEBREW,  J,  B,,  AND  Myrick,  H.  Tobacco  Leaf.  New  York, 
1906, 

Marsh,  A.  R.  Cotto7i  Exchanges  and  Their  Economic  Functions. 
In  Annals  of  the  American  Academy  of  Political  and  Social 
Sciences,  vol.  38,  pp.  571-598,     September,  1911. 

Powell,  George  H,     Co-operative  Agriculture.     New  York,  191 3. 

Price,  T.  H,  King  Cotton  in  Field,  Mill,  and  Mart.  Outlook, 
vol,  106,  pp.  714-722.     March  28,  1914. 

Smith,  Rollin  E.  Wheat  Fields  and  Markets  of  the  World.  St. 
Louis,  1908. 

U.  S,  Bureau  of  Corporations.     Report  on  Cotton  Exchanges. 

U.  S.  Department  of  Agricutlture.  Yearbook.  Improved  Meth- 
ods of  Handling  and  Marketing  Cotton.  Yearbook,  191 2,  pp. 
443-462. 

U.  S.  Department  of  Agriculture.  Bureau  of  Plant  Industry. 
The  Classification  and  Grading  of  Cotton.     Farmers'  bulletin 

591- 
U.  S.  Department  of  Agriculture.     Bureau  of  Plant  Industry. 

The  Relation  of  Cotton  Buying  to  Cotton  Growing.     Bulletin 

no.  60. 
U.    S.    Department    of    Agriculture.     Bureau    of    Statistics. 

Methods  aftd  Routes  for  Exporting  Farm  Products.     Bulletin 

no.  29, 
U.    S.    Department    of    Agriculture.     Bureau    of    Statistics. 

Wheat  a^nd  Flour  Prices  from  Farmer  to  Consumer.     Bulletin 

no.  130. 
U.  S.  Department  of  Agriculture.     A  Study  of  Cotton  Market 

Conditions  with  a  View  to  Their  Improvement.     1917. 
Young,  Thomas  M.     The  American  Cotton  Industry.    New  York, 

1902. 


CHAPTER  IX 

EXPORT  DOCUMENTATION  AND  FREIGHT 
FORWARDING 

The  Documents  and  Details  of  an  Export  Shipment. — 

The  care  and  exactness  required  in  making  out  the  docu- 
ments incidental  to  every  export  shipment  have  discour- 
aged many  a  small  manufacturer  from  attempting  direct 
exporting.  The  number  and  character  of  the  documents 
differ  somewhat  in  accordance  with  the  country  of  destina- 
tion, and  this  adds  to  the  difficulties  of  the  subject.  How- 
ever, exact  information  as  to  the  rules  governing  shipments 
to  each  country  may  be  obtained  from  the  Bureau  of  For- 
eign and  Domestic  Commerce  and  also  from  the  consuls 
of  the  respective  countries.  In  general,  the  documents 
required  are  the  commercial  invoice,  the  railroad  and 
steamship  bills  of  lading,  the  export  declaration,  the  in- 
surance policy  or  certificate,  the  consular  invoice,  and  the 
draft.  There  are  other  documents  involved  in  the  details 
of  making  shipments,  and  the  use  of  these  will  be  best 
understood  by  following  an  export  shipment  from  the  time 
the  order  is  received  until  it  leaves  the  United  States  port. 
After  an  order  has  been  received  by  a  manufacturer,  and 
is  assembled  ready  for  shipment,  it  is  packed  strictly  ac- 
cording to  instructions  or  to  the  known  requirements  for 
goods  destined  to  the  point  in  question.  A  packing  or 
shipping  list  is  made  out  for  the  convenience  of  the  shipping 
department,  and  the  export  invoice  is  filled  out  with  the 
greatest  care  and  exactness.  When  the  goods  have  been 
properly  packed  and  each  case  or  package  plainly  marked 
with  initials  or  other  letters  or  characters,  they  are  delivered, 
in  the  case  of  inland  manufacturers,  to  the  railroad,  and 
a  bill  of  lading  secured.    There  are  usually  three  copies 

io8 


EXPORT  DOCUMENTATION  109 

of  the  bill  of  lading.  These,  together  with  three  copies  of 
the  export  invoice,  are  immediately  mailed  to  the  agency, 
branch,  or  employee  at  the  port,  that  is  to  take  charge  of 
the  forwarding  of  the  shipment  from  that  point. 

When  the  goods  arrive  at  the  port,  the  agent  must  se- 
cure a  shipping  permit  from  the  steamship  company, 
claim  the  goods  from  the  railroad  by  presenting  the  bill 
of  lading,  make  arrangements  for  the  hauling  of  the  ship- 
ment to  the  steamship  pier,  prepare  and  have  certified 
the  required  number  of  copies  of  the  consular  invoice,  make 
out  and  attest  an  export  declaration  on  forms  provided  by 
the  United  States  Custom-House,  have  this  properly  certi- 
fied by  a  customs  official,  prepare  the  steamship  bills  of 
lading  on  forms  provided  by  the  steamship  company, 
prepay  the  freight,  and  secure  the  signature  of  the  steam- 
ship agent  to  the  bills  of  lading,  and  deKver  the  export 
declaration  to  this  official,  to  be  used  in  the  clearance  of 
the  ship.  Unless  the  insurance  policy  has  been  taken  out 
before  shipment,  this  must  also  be  attended  to.  In  case 
of  a  blanket  policy,  under  which  different  shipments  may 
be  made  upon  the  issuance  of  an  insurance  certificate,  the 
latter  is  procured  by  the  manufacturer  and  forwarded  to 
the  shipping-agent  at  the  port  along  with  the  railroad  bill 
of  lading  and  the  invoice.  With  this  general  review  of 
the  details  incident  to  making  an  export  shipment,  each  of 
the  important  docimients  will  now  be  considered  at  some 
.\ength. 

Export  Invoices. — The  heading  of  the  export  invoice 
gives  the  name  of  the  shipper  and  of  the  consignee,  with  the 
address  of  each;  the  name  of  the  steamship  on  which  the 
goods  are  carried;  the  distinguishing  marks,  initials,  or 
nmnbers  by  which  the  various  packages  or  cases  constitut- 
ing the  shipment  may  be  identified;  the  number  of  pack- 
age.; or  cases  included  in  the  shipment;  and,  in  most  cases, 
a  code  word  that  may  be  used  in  applying  to  the  whole 
invoice  in  cable  communications. 


no    FOREIGN  TRADE  OF  UNITED   STATES 

In  the  body  of  the  invoice  are  stated  the  number  of 
packages  or  cases  with  the  outside  measurements  and  cubic 
contents  of  each,  the  number  of  articles  contained  in  each 
package,  an  exact  and  specific  description  of  each  article 
included,  the  price  of  each  article,  tie  total  price  of  all 
articles  contained  in  each  package,  and  a  footing  showing 
the  value  of  the  entire  shipment.  The  exact  nature  of  each 
package,  as  box,  barrel,  bale,  crate,  or  cask  is  designated; 
each  article  is  specifically  described  as  to  the  material  of 
which  it  is  made,  its  use,  and  the  parts  belonging  to  it, 
where  these  are  packed  separately.  For  instance,  a  desk 
is  described  as  made  of  oak,  with  brass  knobs;  chairs,  of 
oak  frames,  with  leather  seats  and  hair  stufi&ng.  The  words 
furniture,  hardware,  groceries,  cloth  are  not  used,  but 
sofas,  hammers,  caimed  corn,  and  cotton  unbleached  cloth 
are  substituted,  as  being  more  specific.  Every  article  in 
the  shipment  is  included  in  the  invoice,  though  it  may  not 
have  any  commercial  value;  this  applies  to  catalogues, 
calendars,  and  other  advertising  matter.  The  prices  are 
usually  expressed  in  United  States  money;  it  was  foirnerly 
the  custom  to  change  this  into  English  money  after  the 
footing  was  made,  but  since  dollar  exchange  has  become  so 
firmly  established,  this  is  no  longer  the  rule. 

The  letters  ''E.  &  O.  E.''  are  found  on  many  export  in- 
voices. They  indicate  ''Errors  and  Omissions  Excepted.  ' 
As  a  rule  abbreviations  are  avoided,  as  their  use  may  re- 
sult in  confusion  and  misunderstanding.  As  export  iri- 
voices  eventually  pass  into  the  hands  of  foreign  custon^cs 
ofiicials,  every  effort  is  made  to  expedite  the  clearance  oi 
the  goods  by  making  the  invoice  specific,  detailed,  comple  te, 
exact,  and  clear  in  every  respect.  Where  even  a  slight 
discrepancy  is  found  between  the  description  of  goodfs  in 
the  invoice  and  the  actual  contents  of  the  packages,  heavy 
fines  may  be  imposed  by  the  foreign  customs  officials,  and 
costly  delays  result. 

It  is  not  customary  for  the  full  name  and  address  oil  the 


EXPORT  DOCUMENTATION  iii 

consignee  to  appear  on  the  packing-cases;  hence,  it  is  im- 
portant that  the  numbers  or  letters  or  characters  used  be 
indicated  clearly  on  the  invoice,  with  absolutely  no  devia- 
tion from  the  mark  as  it  actually  appears  on  the  packages. 

A  knowledge  of  the  customs  regulations  of  the  coun- 
tries to  which  goods  are  shipped  is  all-important  for  the 
export  shipping-clerk.  Without  such  knowledge,  it  is 
impossible  for  him  to  avoid  costly  errors,  serious  misunder- 
standings, and  the  piling  up  of  many  claims.  With  study, 
care,  and  exact  attention  to  details,  the  making  out  of 
export  invoices  becomes  a  simple  task. 

The  Shipping  Permit. — Even  when  arrangements  have 
been  made  in  advance  for  steamship  space  on  a  specified 
date,  it  is  necessary  to  secure  a  shipping  permit  from  the 
steamship  agent  before  goods  are  delivered  at  the  pier. 
This  permit  specifies  the  goods  to  be  shipped,  the  number 
of  packages,  the  steamer,  and  the  day  or  days  on  which 
they  may  be  laid  down  at  the  pier.  When  the  freight  is 
delivered,  a  dock  receipt  is  issued,  which  contains  a  memo- 
randum of  the  number  of  cases  or  packages,  the  marks 
thereon,  and  the  weight  and  cubic  contents  of  the  same. 

Consular  Invoices. — Consular  invoices  are  required  by 
all  of  the  Latin  American  republics  except  Uruguay. 
They  are  not  required  for  shipments  made  to  European  or 
other  countries.  Those  covering  export  shipments  to 
Argentina,  Brazil,  Chile,  Cuba,  and  Mexico  may  be  writ- 
ten in  English;  for  all  other  Latin  American  countries  it  is 
required  that  consular  invoices  be  written  in  Spanish. 

The  consular  invoice  contains  all  of  the  information 
found  in  the  commercial  invoice,  with  such  additional  facts 
as  may  be  required  by  the  laws  of  the  country  to  which  the 
sliipment  is  made.  They  are  made  out  in  triplicate  on 
special  forms  obtainable  from  the  consul  of  the  country 
in  question.  They  are  prepared  by  the  shipping-agent, 
and  are  then  translated  by  a  professional  translator,  who 
is  thoroughly  conversant  with  the  specific  requirements  of 


112     FOREIGN  TRADE  OF  UNITED   STATES 

the  republic  to  which  the  goods  are  consigned.  The  em- 
ployment of  an  inexperienced  translator  often  leads  to 
difficulties  which  may  prove  expensive  in  the  long  run. 

When  completed  the  consular  invoice  is  presented  to  the 
consul  for  certification,  the  bill  of  lading  being  attached 
thereto.  The  certification  of  the  bill  of  lading  is  required 
by  some  republics.  The  number  of  copies  of  the  consular 
invoice  required  varies,  some  countries  providing  for  as 
many  as  four,  though  three  is  the  usual  number.  Specific 
information  as  to  the  requirements  is  obtainable  by  appli- 
cation to  the  consul  of  the  foreign  country;  they  are  con- 
stantly being  modified.  The  fee  for  consular  certification 
varies  according  to  the  country  in  question  and  to  the 
character  and  value  of  the  shipment.  In  some  cases  it  is 
merely  nominal;  in  others,  a  percentage  of  the  value  of 
the  goods  is  charged,  which  may  make  the  cost  of  this 
docimient  an  important  item. 

Shipper's  Export  Declaration. — The  United  States  cus- 
toms regulations  require  that  the  shipper  or  his  agent 
prepare  and  file  an  export  declaration  for  every  shipment 
to  foreign  countries.  This  declaration  is  made  out  in 
duplicate  on  forms  provided.  The  original  is  left  with  the 
collector  of  customs  and  the  duplicate  delivered  by  the  ship- 
per or  his  agent  to  the  steamship  officials.  Clearance,  or 
permission  to  leave  port,  is  not  granted  a  vessel  until  such 
a  declaration  has  been  filed  for  each  part  of  the  cargo  with 
the  collector  of  the  customs.  The  declaration  as  filled  out 
by  the  shipper  contains  an  accurate  description  of  the 
articles  contained  in  the  shipment,  a  specific  description  of 
the  number  and  kinds  of  packages,  and  of  the  quantity  in 
tons,  pounds,  gallons,  yards,  etc.  The  value  of  the  articles 
is  stated  on  the  original  declaration,  but  need  not  be  given 
on  the  duplicate  copy.  The  duplicate,  which  does  not  dis- 
close the  value  of  the  goods,  is  handed  over  to  the  shipper's 
agent  at  the  port  or  to  the  carrier  as  proof  of  compliance 
with  the  customs  requirements.    The  duplicate  export  dec- 


EXPORT  DOCUMENTATION  113 

laration  must  be  certified  by  the  collector  of  customs  or 
his  deputy  before  it  is  delivered  to  the  carrier.  The  ex- 
port declaration  must  be  sworn  to  by  the  shipper  or  his 
agent,  either  before  the  collector  of  customs  or  before  any 
officer  authorized  to  administer  oaths.  No  oath  is  required 
for  exports  sent  by  land  nor  for  shipments  valued  at  less 
than  $100. 

Since  the  oath  may  be  taken  before  a  notary  public, 
the  inland  shipper  is  thus  enabled  to  make  out  and  attest 
this  document  at  the  time  the  goods  are  shipped  to  the  port, 
and  to  forward  it  to  his  agent  at  the  port,  along  with  the 
railroad  bill  of  lading  and  the  commercial  invoice. 

Railroad  Bill  of  Lading. — A  bill  of  lading  is  the  written 
instrument  issued  by  a  common  carrier  w^hen  it  takes  pos- 
session of  the  goods  to  be  transported.  A  bill  of  lading  has 
three  distinct  uses :  first,  it  is  the  receipt  given  by  the  trans- 
portation company  to  the  shipper  for  the  goods  delivered 
by  him  to  the  company  or  carrier;  second,  it  is  an  agree- 
ment or  contract  for  the  transportation  of  the  goods;  third, 
it  is  a  docimient  showing  the  title  to  the  goods  shipped.  It 
is  signed  by  the  shipper  or  his  agent  and  also  by  the  agent 
of  the  railroad  company.  It  is  usually  necessary  to  present 
the  bill  of  lading  to  the  railroad  freight-agent  at  the  point 
of  destination  in  order  to  secure  possession  of  the  goods, 
although  this  rule  is  not  always  enforced  in  the  case  of 
large  and  well-known  shippers. 

The  bill  of  lading  contains  a  description  of  the  merchan- 
dise shipped,  with  the  number  of  packages,  the  distinguish- 
ing marks  on  each,  the  weight,  the  freight  rate,  and  the 
route  aU  clearly  specified.  Railroad  freight  may  or  may 
not  be  paid  in  advance.  Through  bills  of  lading  are  some- 
times issued,  on  which  goods  are  carried  not  only  to  the 
port,  but  also  by  ocean-carrier  to  the  foreign  point  to  which 
they  are  consigned.  Such  bills  of  lading  are  the  rule  for  ship- 
ments in  car-load  lots.  Special  railroad  rates  are  granted 
on  certain  classes  of  exports,  as  well  as  of  imports.     These 


114     FOREIGN  TRADE   OF   UNITED   STATES 

apply  only  to  car-load  lots,  ard  goods  so  shipped  are  on  a 
through  bill  of  lading  to  the  foreign  port.  They  are  con- 
signed in  care  of  the  railroad  company's  foreign  freight-agent 
at  the  port  of  shipment,  who  attends  to  the  details  of  trans- 
shipment. The  commodities  upon  which  such  special  rates 
are  granted  include  grain,  flour,  pig  iron,  steel  rails,  and 
agricultural  implements. 

Steamship  Bill  of  Lading. — Steamship  bills  of  lading  are 
made  out  on  forms  specially  provided,  which  contain  an 
exhaustive  list  of  printed  conditions  under  which  the  con- 
tract to  carry  the  goods  is  made.  The  name  of  the 
shipper,  and  of  the  consignee,  unless,  as  is  most  often  the 
case,  the  goods  are  consigned  to  the  order  of  the  shipper, 
are  given,  as  is  also  the  name  of  the  steamship  and  of  the 
line  to  which  it  belongs.  The  merchandise  is  described  in 
detail,  with  the  number  of  packages,  identifying  marks, 
weight,  and  measurements  of  each. 

Steamship  bills  of  lading  specifically  state  that  lighterage 
charges,  the  cost  of  landing,  wharfage,  and  all  other  ex- 
penses ''beyond  ship's  tackle"  shall  be  charged  to  the  con- 
signee or  shipper.  In  other  words,  freight  rates  apply  from 
and  to  ship's  tackle,  the  tackle  being  the  apparatus  for 
raising  and  lowering  heavy  weights. 

Another  provision  found  in  bills  of  lading  is  to  the  effect 
that  the  goods  shall  be  received  by  the  consignee  at  vessel's 
tackle  ''immediately  upon  her  arrival  at  place  of  delivery, 
without  regard  to  weather,  and  if  the  consignee  be  not  on 
hand  to  receive  the  goods  when  discharged,  the  carrier 
may  deHver  them  to  any  lighterman,  wharfinger,  or  other 
party  believed  to  be  responsible,  or  they  may  be  landed  on 
wharf  or  beach  or  bank  or  stored  in  hulks  or  put  in  Hghters 
for  the  owner  and  at  owner's  risk  and  expense."  The 
necessity  of  notifying  the  consignee  when  he  may  expect  a 
shipment  to  arrive  is  apparent. 

Bills  of  lading  are  customarily  made  out  to  the  order  of 
the  shipper  and  by  him  indorsed  in  blank,  so  that  the  title 


EXPORT  DOCUMENTATION  115 

to  the  merchandise  remains  -^ath  the  holder  of  the  bill  of 
lading.  Bills  of  lading  drawn  to  the  consignee  or  his  order 
are  not  accepted  by  banks  as  part  of  a  documentary  bill 
of  exchange  presented  for  discount,  because  the  holders 
of  such  bills  of  lading  have  no  lien  on  the  goods.  In  case 
the  customer  has  paid  cash,  or  cash  against  documents  in 
the  port  of  shipment,  the  bill  of  lading  may  be  made  out  to 
his  order. 

Bills  of  lading  are  made  out  in  triplicate,  and  the  num- 
ber of  copies  issued  is  always  stated  on  the  face  of  the  docu- 
ment. This  is  because  a  bill  of  lading  is  a  negotiable  in- 
strument, and  the  possession  of  any  one  copy  entitles  the 
holder  to  the  possession  of  the  goods,  provided  it  has  been 
indorsed  in  blank  by  the  shipper.  Additional  copies  that 
are  unsigned  may  be  made  out  for  the  use  of  the  steamship 
company  or  for  other  purposes;  these  are  valueless  as  far 
as  the  ownership  of  the  goods  is  concerned.  It  is  the  cus- 
tom to  prepay  the  freight  on  export  shipments,  and  many 
steamship  companies  require  this.  When  the  freight  is 
paid,  the  agent  of  the  steamship  company  signs  the  number 
of  copies  indicated  on  the  face  of  the  bill  of  lading  and 
delivers  them  to  the  shipper  or  his  agent. 

The  bin  of  lading  is  sent  to  the  consignee,  either  through 
a  bank  with  draft  attached,  or  direct  by  mail. 

Railroads  and  other  carriers  of  domestic  shipments 
make  delivery  quite  generally  without  presentation  of  the 
bill  of  lading.  This  is  not  done  in  the  case  of  ocean  freight. 
The  bill  of  lading  is  evidence  of  title  to  the  goods  and  must 
be  presented  to  the  ocean-carrier  in  order  to  gain  posses- 
sion of  them.  The  consular  or  commercial  invoice  must 
also  be  in  the  hands  of  the  consignee  before  he  can  have  the 
goods  passed  through  the  custom-house.  It  is  of  \dtal  im- 
portance that  these  documents  reach  the  consignee  or  his 
agent  as  soon  as  the  goods  arrive,  or  at  an  earlier  date  if 
possible.  For  the  documents  to  miss  the  ship  on  which 
the  goods  are  carried  invariably  leads  to  serious  difficulties, 


ii6     FOREIGN  TRADE   OF   UNITED   STATES 

unless  mail  service  is  much  more  frequent  than  is  the  case 
to  most  ports.  The  customs  requirements  of  most  coun- 
tries provide  that  goods  be  taken  from  the  custom-house 
promptly.  In  Latin  American  countries  and  in  some  others 
fines  are  assessed  the  consignee  when  he  fails  to  claim  and 
remove  the  goods  within  a  specified  number  of  hours. 
Failure  of  the  shipping  documents  to  arrive  thus  proves 
costly,  as  well  as  inconvenient,  and  sometimes  results  in 
the  rejection  of  the  shipment  by  the  consignee. 

The  Shipper's  Agent  at  the  Port. — The  necessity  for  the 
inland  manufacturer  to  have  an  agent  or  employee  at  the 
port  of  shipment  is  apparent.  This  representative,  as 
previously  explained,  claims  the  merchandise,  has  it  trans- 
ferred to  the  dock,  and  attends  to  the  documentation  and 
shipment.  In  order  to  avoid  delay,  the  representative  is 
usually  given  the  shipper's  power  of  attorney;  he  is  thus 
enabled  to  make  oath  to  the  correctness  of  the  consular  in- 
voice, and  to  the  shipper's  export  declaration,  where  this 
has  not  been  made  out  and  attested  by  the  shipper  in  ad- 
vance. If  a  credited  representative  with  power  of  attorney 
to  act  for  the  shipper  is  not  maintained  at  the  port,  it  is 
necessary  for  the  documents  to  be  mailed  back  to  the  ship- 
per for  proper  indorsement  and  oath,  thus  entailing  delay 
that  may  result  in  their  missing  the  boat.  Some  inland 
shippers  avoid  this  difficulty  by  employing  a  forwarding 
agent  who  is  authorized  to  make  the  shipment  in  his  own 
name. 

Since  specific  knowledge,  absolute  exactness,  and  un- 
varying promptness  are  all  required  in  attending  to  the 
documents  and  details  involved  in  making  an  export  ship- 
ment, it  follows  that  there  are  numerous  agencies  that 
make  it  their  business  to  attend  to  this  work  for  inland  and 
other  shippers.  These  agencies  include  freight-forwarding 
companies,  manufacturers'  export  agencies,  transfer  com- 
panies, and  foreign  freight-agents  of  railroad  and  steam- 
ship companies.     The  manufacturer  who  has  only  a  small 


EXPORT  DOCUMENTATION  117 

volume  of  export  business  usually  finds  it  to  his  advantage 
to  make  use  of  one  of  these  agencies,  while  a  firm  having 
a  large  export  trade  maintains  a  branch  office  at  the  port. 
The  services  rendered  by  each  of  the  agencies  may  be 
briefly  considered  here. 

Freight-Forwarding  Agencies.— There  are  in  New  York, 
Philadelphia,  Boston,  New  Orleans,  San  Francisco,  and 
other  ports  large  companies  organized  for  the  specific  pur- 
pose of  forwarding  export  shipments  for  manufacturers 
or  others.  The  forwarding  charges  are  usually  based 
on  a  percentage  of  the  value  of  the  goods,  and  are  charged, 
by  agreement,  to  the  consignee.  In  case  of  c.  i.  f.  quota- 
tions, they  are  included  in  the  price  quoted.  Reliable  for- 
warding agents  make  a  reasonable  charge  for  their  services, 
and  handle  all  shipments  intrusted  to  them  promptly  and 
expertly. 

As  soon  as  the  forwarding  agent  receives  the  railroad  bill 
of  lading  and  the  invoice,  he  claims  the  goods,  which  have 
been  consigned  to  him,  takes  out  the  shipping  permit,  has 
the  goods  transferred  to  the  pier,  attends  to  completing  the 
documentation,  pays  the  ocean  freight,  the  consular  fees, 
and  all  other  charges,  and  arranges,  in  many  cases,  for  the 
negotiation  of  the  draft  at  a  bank  or  through  a  broker.  He 
then  adds  the  total  shipping  expenses,  including  his  own 
charges,  to  the  footing  of  the  export  invoice  and  fills  in  the 
full  amount  on  the  draft,  which  has  been  drawn  by  the  ship- 
per in  blank.  He  then  takes  the  documents  to  the  bank  as 
promptly  as  possible,  so  as  to  allow  ample  time  for  their 
examination.  If  found  correct  and  satisfactory  to  the 
minutest  detail,  the  bank  does  one  of  three  things,  according 
to  previous  agreement. 

1.  It  discounts  the  bill  of  exchange  and  credits  the  pro- 
ceeds to  the  shipper  or  his  agent. 

2.  It  accepts  the  draft,  thus  enabling  the  shipper  to 
discount  it,  either  at  that  or  at  some  other  bank.  In  this 
case,  the  draft  has  been  drawn,  by  previous  agreement,  not 


ii8    FOREIGN  TRADE   OF  UNITED   STATES 

on  the  consignee  but  on  the  bank.  This  does  not  prevent 
another  draft,  drawn  on  the  customer  being  made  and  for- 
warded for  collection. 

3.  It  forwards  the  documents  to  its  branch  or  corre- 
spondent bank  located  at  or  near  the  place  of  destination, 
where  the  draft  is  to  be  either  accepted  or  paid,  as  explained 
in  the  chapter  on  financing  export  shipments. 

Manufacturers*  Export  Agents. — Those  manufacturers 
who  are  not  prepared  to  maintain  a  branch  ofiice  at  the 
port  of  shipment  often  have  recourse  to  export  agents, 
who  represent  a  group  of  manufacturers.  The  compensa- 
tion is  usually  on  a  commission  basis.  Such  agents 
handle  the  export  shipments  intrusted  to  them  in  precisely 
the  same  way  as  do  other  freight  forwarders.  Hence,  their 
services  in  this  direction  need  not  be  elaborated.  But  a 
manufacturers'  agent  often  undertakes  to  perform  other 
services,  such  as  the  distribution  of  catalogues  and  samples 
and  the  obtaining  of  orders,  whether  domestic  or  foreign. 
The  foreign  business  obtained  comes  mostly  through  ex- 
port commission  houses,  which  find  it  convenient  to  place 
a  foreign  order  with  the  agent  in  the  field  rather  than  with 
a  manufacturer  at  a  distance. 

Other  Forwarding  Agents. — The  other  agencies  that  may 
be  employed  by  the  manufacturer  to  attend  to  the  forward- 
ing of  export  shipments  at  the  port  are  tran_sfer  companies 
and  the  agents  of  railroad  and  steamship  companies.  The 
work  of  these  is  exactly  similar  to  that  of  the  freight-for- 
warding agencies  ahready  described.  Nearly  all  of  the  large 
raihroads  mamtain  export  agents  at  the  various  ports,  whose 
duty  it  is  to  attend  to  the  details  of  shipping  export  freight 
that  has  been  carried  from  the  interior  to  the  port  over 
their  company's  lines.  Many  steamship  companies  likewise 
have  agents  who  may  be  employed  to  attend  to  the  foreign 
shipments.  Large  transfer  companies  maintain  an  export 
department  in  charge  of  an  employee  competent  to  attend 
to  the  details  of  making  export  shipments.  The  charges  do 
not  differ  from  those  made  by  other  forwarding  companies. 


EXPORT  DOCUMENTATION  119 

BIBLIOGRAPHY 

Duncan,  C.  S.     The  Uniform  BUI  of  Lading.    Journal  of  Political 

Economy,  vol.  25,  pp.  679-703,  July,  191 7. 
Exporters^  EncydopcBdia.     New  York,  191 7. 
Galloway,  Lee.     Organization  a?id  Management.     Part  1,  chapter 

6.     New  York,  1913. 
Hooper,  Frederick.     The  Import  a}id  Export  Trade  ;  or,  Modern 

Commercial  Practice  of  the  United  Kingdom  with  Documents. 

London  and  New  York,  1905. 
Hough,  B.  O.     Ocean  Traffi-c  and  Trade.     Chicago,  1914. 
Hough,  B.  0.     Practical  Exporting.     New  York,  1915. 
International  Bureau  of  the  American  Republics.     Consular 

Fees  and  Invoices  of  Latin  American  Countries.     Washington, 

1909. 
JohinTSON,   Emory  R.    Ocean  atid  Inland  Water   Transportation. 

Chapter  5.     New  York,  1906. 
Johnson,  Emory  R.     Principles  of  Ocean  Transportation.    New 

York,  191 8. 
Kent,  F.  I.     Financing  Our  Foreign  Trade.     Annals  of  the  Ameri- 
can Academy  of  Political  and  Social  Science,  vol.  36,  pp.  492- 

501. 
Margraff,  Anthony  W.    International  Exchange.     Chicago,  1908. 
National  City  Bank,  New  York.    An  Export  Order.    New  York, 

1917. 


CHAPTER  X 
IMPORT  MACHINERY  AND  METHODS 

Import  Regulations. — In  order  to  enforce  the  customs 
laws  and  regulations  of  the  United  States,  definite  rules 
governing  the  importation  of  merchandise  are  in  force. 
These  provide  for  the  taking  out  of  consular  invoices  at 
the  place  of  purchase  or  shipment,  for  the  following  of  a 
fixed  procedure  in  the  clearance  of  imports  through  the 
United  States  Custom-House  located  at  the  port  of  entry, 
describe  the  exact  methods  to  be  followed  in  the  examina- 
tion and  appraisement  of  the  goods  by  customs  officers,  and 
clearly  set  forth  the  conditions  under  which  imported  mer- 
chandise may  be  placed  in  a  government  bonded  warehouse 
and  kept  there  until  the  importer  is  ready  to  pay  the  duty 
and  remove  the  goods.  Goods  that  are  on  the  free  list, 
as  well  as  those  upon  which  an  import  duty  is  assessed, 
must  be  cleared  strictly  in  accordance  with  the  rules  pro- 
vided by  law. 

The  purpose  of  these  laws  and  regulations  is  twofold: 
first,  in  order  to  facilitate  the  collection  of  the  duties  on 
imports,  which  make  up  a  large  part  of  the  revenue  of  the 
federal  government;  second,  to  enable  the  government 
to  collect  accurate  statistics  of  articles  imported,  including 
their  price,  quantity,  source,  and  destination.  It  often 
happens  that  goods  imported  are  later  exported;  in  that 
case,  where  an  import  duty  has  been  paid,  it  is  refunded  in 
the  form  of  a  ''drawback"  providing  proof  is  produced  that 
either  the  specific  articles  or  the  raw  materials  from  which 
they  were  manufactured  were  imported  and  duty  paid 

120 


IMPORT  MACHINERY  AND  METHODS      121 

thereon.  A  great  convenience  for  importers  is  the  use  of 
government  bonded  warehouses,  where  goods  subject  to 
duty  may  be  placed,  the  collection  of  the  duty  being  deferred 
until  such  time  as  the  importer  may  wish  to  gain  possession 
of  a  part  or  all  of  the  goods.  The  interest  saved  by  thus 
postponing  the  payment  of  duties  amounts  in  the  aggre- 
gate to  a  huge  sum.  Importers  thus  find  it  desirable  to 
purchase  staple  articles  from  abroad  in  large  quantities, 
thereby  securing  price  concessions,  a  policy  that  would  be 
impracticable  if  the  full  amount  of  the  duty  was  exacted 
upon  the  entry  of  the  merchandise. 

Import  Documentation. — The  documents  required  in  the 
importation  of  goods  are  the  consular  invoices,  the  bill  of 
lading,  and  the  import  declaration.  For  all  goods  imported 
into  the  United  States  to  the  value  of  $100  or  more,  there 
must  be  taken  out  a  consular  invoice,  certified  to  by  the 
United  States  consul  at  the  point  of  sale,  manufacture,  or 
shipment.  Three  copies  of  such  invoice  are  made  out. 
One  copy  is  kept  by  the  consul,  one  is  forwarded  by  the 
consul  to  the  collector  of  customs  at  the  port  to  which  the 
goods  are  shipped,  and  the  third  copy  is  given  to  the  ex- 
porter. This  third  copy  is  stamped  with  the  official  seal 
of  the  consul  and  the  revenue  stamp  of  $2.50  is  affixed  to 
it.  The  consular  fee  is  thus  uniformly  $2.50.  If  the 
shipper  desires,  a  fourth  copy  may  be  made  out  for  his  files. 
Two  forms  of  consular  invoices  are  in  use.  One  is  on  blue 
paper  and  is  used  when  the  merchandise  has  been  purchased 
outright;  the  other  is  on  white  paper  and  is  issued  when  the 
goods  are  shipped  on  consignment  to  the  United  States, 
their  ownership  remaining  with  the  shipper. 

Each  shipment  must  be  entered  at  the  United  States 
Custom-House  within  forty-eight  hours  of  the  official  entry 
of  the  vessel.  The  entry  of  a  vessel  is  made  by  the  de- 
positing of  the  ship's  papers  at  the  custom-house.  In  the 
same  way,  the  entry  of  a  shipment  is  made  by  depositing 
at  the  custom-house  the  consular  invoice,  the  bill  of  lad- 


122     FOREIGN  TRADE   OF   UNITED   STATES 

ing,  and  an  import  declaration.  The  import  declaration 
must  be  made  out  on  forms  provided  by  the  Treasury 
Department  or  approved  by  that  department.  In  this 
declaration  the  importer  or  his  agent  must  declare  that 
the  invoice  contains  an  accurate  account  of  the  goods  con- 
tained in  the  shipment,  and  that  it  correctly  and  fully 
specifies  the  exact  cost  of  the  goods,  as  well  as  the  value 
of  all  cases,  boxes,  and  crates  in  which  the  goods  are  shipped, 
and  of  the  cost  of  packing  the  goods  for  shipment.  He 
must  further  declare  that  no  discount  or  bounty  has  been 
received  and  that  no  other  invoice  or  bill  of  lading  exists, 
and  that  no  effort  whatsoever  has  been  made  to  defraud 
the  United  States  Government  of  lawful  duties.  The 
importer  is  also  required  to  promise  that  if  any  error  in 
the  invoice  is  later  discovered,  he  will  immediately  report 
such  error  to  the  collector  of  customs  of  the  district.  The 
import  declaration  contains  a  complete  description  of  the 
goods,  the  number  of  packages  included,  the  contents  of 
each  package,  the  cost  of  each  article  in  the  money  in  which 
the  invoices  are  made  out,  and  other  details.  If  there  is 
any  defect  in  either  the  invoice  or  the  import  declaration, 
goods  are  placed  in  the  custody  of  the  collector  in  a  ware- 
house, where  they  are  kept  until  their  value  is  determined. 

Different  entries  may  be  made.  Goods  not  subject  to 
duty  and  those  needed  immediately  are  covered  by  an 
import  or  consumption  entry,  and  are  released  as  soon  as 
they  can  be  examined  by  the  customs  officials,  and  the  duty, 
where  there  is  one,  is  assessed  and  paid.  Goods  destined 
for  an  interior  point  may  be  shipped  in  bond  in  sealed  cars, 
and  the  goods  cleared  there.  Goods  which  it  is  desired 
to  place  in  government  bonded  warehouse  are  subject  to 
special  conditions.  The  importer  is  required  to  furnish 
a  bond  guaranteeing  that  the  goods  will  be  withdrawn 
within  three  years  of  the  date  of  entry  and  that  the  duty 
wiU  be  paid  upon  withdrawal. 

Bonded  warehouses,  under  strict  government  control, 


IMPORT  MACHINERY  AND   METHODS      123 

are  provided  for  the  convenience  of  importers  who  do  not 
wish  to  gain  immediate  possession  of  imports.  The  goods 
in  this  case  are  placed  in  bonded  warehouses  and  held  un- 
til the  duty  is  paid.  As  this  duty  is  often  a  very  large 
amount,  the  saving  in  interest  to  the  importer  is  an  item 
of  importance. 

Bonded  warehouses  are  usually  owned  by  the  govern- 
ment, but  they  may  be  the  property  of  private  individuals 
or  firms,  located  near  the  factory  or  other  place  of  business 
of  the  individuals  or  firms  owning  them.  In  either  case 
they  are  built  in  strict  conformity  to  government  specifica- 
tions and  are  fireproof.  Warehouses  of  this  kind  are  often 
built  in  the  interior  of  the  coimtry,  far  from  the  port  of 
entry. 

Each  bonded  warehouse  is  in  charge  of  a  government 
official  whose  title  is  that  of  storekeeper,  who  keeps  exact 
account  of  all  merchandise  brought  into  or  removed  from 
the  warehouse.  No  goods  can  be  withdrawn  from  a  bonded 
warehouse  without  a  written  order  or  permit  from  the 
collector  of  the  port  through  which  the  shipment  entered 
the  country. 

Goods  may  be  withdrawn  from  a  bonded  warehouse  in 
quantities  desired  by  the  importer,  the  duty  being  paid  on 
the  portion  desired  before  their  removal. 

American  manufacturers  whose  trade  is  largely  with 
foreign  countries  find  it  convenient  to  bond  their  factories 
to  the  government,  which  converts  them  into  bonded 
warehouses  under  government  regulations.  They  can  then 
have  the  raw  materials  imported  brought  to  the  factories 
under  bond,  and,  without  paying  duty,  manufacture  these 
materials  into  finished  goods  and  export  them.  Where 
practically  all  of  the  raw  materials  used  in  a  plant  are 
imported,  such  a  procedure  has  advantages  over  paying 
duty  when  the  materials  are  received  and  then  securing 
a  drawback  of  the  duty  paid  when  the  finished  products, 
manufactured  from  the  imported  materials,  are  exported. 


124     FOREIGN  TRADE   OF   UNITED   STATES 

The  Appraisement  of  Imports. — A  preliminary  appraise- 
ment is  made  by  customs  officials  and  duties  assessed  ac- 
cording to  the  value  and  character  of  the  goods  as  set  forth 
in  the  documents.  Only  a  part  of  a  shipment  is  ordinarily 
subjected  to  examination;  unless  it  is  found  that  there  is 
some  discrepancy  between  the  description  and  the  goods, 
or  unless  there  is  some  other  reason  for  suspecting  the  hon- 
esty of  the  importer,  the  entire  shipment  is  delivered  to  the 
importer  as  soon  as  this  partial  inspection  is  completed. 
If  the  importer  is  anxious  to  obtain  immediate  possession 
of  the  goods,  all  but  the  part  to  be  examined  may  be  de- 
livered to  him  upon  the  filing  of  a  bond  guaranteeing  the 
return  of  the  goods  delivered  if  such  return  should  be  re- 
quired. A  delivery  permit  is  issued  by  the  customs  officials 
for  each  shipment  or  part  of  shipment  to  be  withdrawn  by 
the  importer. 

Import  Methods — Manufactures. — Having  briefly  re- 
viewed the  methods  by  which  imported  merchandise  is 
passed  through  the  United  States  Custom-House,  we  will 
proceed  to  a  consideration  of  the  commercial  channels 
through  which  the  products  of  foreign  countries  pass  from 
the  producer  to  the  American  importer.  About  40  per 
cent  of  our  imports  consist  of  wholly  or  partly  manufactured 
articles,  the  major  portion  of  which  are  cotton,  woollen, 
silk,  and  linen  textiles  and  their  manufactures.  Leather, 
paper,  wood,  and  their  manufactures,  art  works,  china- 
ware,  jewelry  and  precious  stones,  millinery,  clocks,  watches, 
and  furs  are  other  manufactured  articles  imported  each 
year  to  the  value  of  millions  of  dollars.  For  the  most  part, 
such  articles  are  imported  by  wholesale  mercantile  estab- 
lishments and  by  large  retail  stores  carrying  on  business  in 
the  leading  cities.  Both  of  these  maintain  special  repre- 
sentatives or  buyers  abroad,  who  devote  their  entire  time 
to  keeping  in  closest  touch  with  the  markets,  the  changes 
in  styles,  and  the  leading  sources  of  supply.  In  addition 
to  these  resident  buyers,  others  are  sent  abroad  from  time 


IMPORT  MACHINERY  AND  METHODS      125 

to  time  to  secure  special  classes  of  goods,  more  particularly 
those  greatly  affected  by  the  prevailing  modes.  Smaller 
wholesale  and  retail  mercantile  establishments  make  their 
purchases  through  buying  agents  located  in  Paris,  Lon- 
don, Berlin,  Dresden,  and  dozens  of  other  trade  centres. 
These  agents  may  represent  the  goods  of  one  or  more  manu- 
facturers, or  may  buy  in  the  open  market;  they  may  make 
purchases  for  two  or  three  American  importers  or  for  scores 
of  them,  according  to  the  nature  of  the  merchandise  han- 
dled by  them  and  to  other  conditions.  The  methods  em- 
ployed are  so  varied  that  it  is  impossible  to  give  in  brief 
space  a  complete  classification.  However,  the  buyers  rep- 
resenting American  importers,  whether  they  be  employed 
by  one  firm  or  by  a  score,  all  look  to  practically  the  same 
source  for  the  goods  desired.  That  source  is  largely  de- 
pendent upon  the  particular  goods  to  be  purchased.  Pari- 
sian millinery  and  wearing  apparel  are  purchased  from  the 
manufacturer,  who  is  often  a  famous  modiste  employing 
hundreds  of  work-people.  Laces,  embroideries,  and  trim- 
mings may  be  purchased  direct  from  the  manufacturer 
or  from  a  manufacturer's  agent.  In  the  case  of  hand-made 
goods,  the  buyer  seldom  comes  into  direct  contact  with  the 
workers  or  their  employers,  but  buys  from  a  collector  who 
purchases  the  goods  outright  and  sells  them  to  foreign 
buyers. 

Many  staple  manufactured  articles  are  purchased  by 
American  importers  through  export  commission  houses 
located  in  the  different  trade  centres,  thus  obviating  the 
necessity  of  maintaining  special  buyers  abroad.  A  very 
large  percentage  of  both  German  and  English  manufactured 
goods  are  sold  through  these  agencies,  though  their  ascen- 
dancy is  greatest  in  exports  sent  to  Latin  America.  Orien- 
tal wares  are  purchased  through  great  mercantile  houses 
situated  at  the  ports,  through  export  commission  houses, 
through  brokers,  or  by  special  buyers,  just  as  in  European 
markets. 


126     FOREIGN  TRADE   OF   UNITED   STATES 

A  custom  handed  down  from  the  Middle  Ages  is  the 
marketing  of  goods   through  merchandise  fairs,   held   at 
stated  intervals  at  certain  trade  centres.     Such  fairs  still 
persist  in  some  parts  of  Europe.     Those  still  drawing  buy- 
ers from  other  nations,  including  the  United  States,  are 
the  famous  ones  held  in  Leipzig,  Frankfort,  Lyons,  and 
Nizhni  Novgorod.     By  far  the  most  important  of  these 
has  been  the  Leipzig  fairs  held  at  New  Year's,  Easter,  and 
Michaelmas.     Buyers  from  all  parts  of  the  world  have 
attended  these,  to  view  the  advance  display  of  manu- 
factures for  the  next  season  and  to  give  orders.     The  value 
of  the  annual  sales  made  at  these  fairs  is  estimated  at 
$50,000,000.     The   merchandise   displayed   has    consisted 
principally  of  furs,  for  which  Leipzig  is  the  great  world 
market,  glass,   cloth,   leather   and   leather   manufactures, 
wooUen  goods,  carpets,  and  musical  instruments.    In  191 5 
and   191 7  both  the  United  Kingdom  and  France  made 
an  effort  to  revive  their  olden-time  fairs.     The  fair  held 
at  Lyons,  France,  in  March,  1916,  was  a  notable  success, 
being  attended  by  many  buyers  from  America  and  other 
lands.     Orders   were   taken   for  over  $10,000,000   worth 
of  goods,  and  nearly  as  many  more  had  to  be  refused 
because  of  the  inability  of  the  manufacturers  to  promise 
delivery  in  the  near  future.     This  fair  is  held  annually. 
Silks,  laces,  and  other  distinctive  French  manufactures 
are  displayed,  as  well  as  many  other  products.    Another 
fair  was  held  in  the  Victoria  and  Albert  Museum,  London, 
in  February  and  March,  1917,  at  which  exhibits  of  toys, 
earthenware  and  chinaware,  glass,  notions,  stationery,  and 
other  manufactures  were  made,   and  orders  were  taken 
from  buyers.    At  the  same  time  a  fair  was  held  at  Glas- 
gow,  Scotland,   at  which  textiles,   clothing,   canned  and 
preserved  food  products,  boots  and  shoes,  and  other  articles 
were  exhibited  by  manufacturers.     The  success  of  these 
attempts  points  to  a  wider  use  of  these  world  markets  in 
the  future. 


IMPORT  MACHINERY  AND   METHODS      127 


BIBLIOGRAPHY 

U.  S.  Treasury  Department.     Customs  Regulations  of  the  United 

States  Prepared  for  the  Instruction  and  Guidance  of  Customs 

Officials.     191 5. 
U.    S.    Treasury    Department.     Drawbacks    Under   the    Present 

Tarif  Acts.     64th   Congress,  ist  session.     Senate  document 

no.  532.     1916. 


CHAPTER  XI 

THE  IMPORTATION  OF  RAW  MATERIALS  AND 

FOODSTUFFS 

Methods  in  General. — While  the  same  legal  regulations 
apply  to  the  importation  of  raw  materials  and  foodstuffs 
as  to  manufactured  articles,  each  of  the  great  staple  com- 
modities is  handled  by  a  method  developed  from  long  years 
of  custom,  and  each  has  distinguishing  features  of  impor- 
tance. Just  as  in  the  exportation  of  raw  materials  and  food- 
stuffs from  the  United  States  there  is  found  a  complicated 
system  of  middlemen  and  specialists,  with  prices  and  grad- 
ing of  products  influenced  or  determined  by  the  specula- 
tive exchanges,  so  we  find  more  or  less  complicated  machin- 
ery in  our  import  trade  in  the  staple  articles.  The  great 
staple  raw  materials  and  food  products  which  we  import 
in  large  quantities  are  wool,  hides  and  skins,  india-rubber 
and  gutta-percha,  coffee,  sugar,  tea,  and  silk.  The  trade 
channels  through  which  each  of  these  passes  from  foreign 
producer  to  the  American  manufacturer  or  distributer  will 
be  considered  separately. 

Wool. — The  United  States  is  second  only  to  Australia 
in  the  production  of  wool,  the  annual  clip  averaging  about 
300,000,000  pounds,  which  is  between  one-ninth  and  one- 
tenth  of  the  world's  total  wool  production.  But  our  con- 
sumption of  this  commodity  is  so  great  that  we  find  it 
necessary  to  import  each  year  about  two-fifths  of  the 
amount  consumed  here.  The  domestic  wool  is  of  two 
classes,  both  of  fine  quality,  suitable  for  the  manufacture 
of  cloths,  dress-goods,  and  other  fabrics.  We  do  not  pro- 
duce a  sufficient  quantity  of  these  classes  of  wool  to  supply 
our  needs,  but  import  about  one-fourth  of  such  wool  used. 

128 


RAW  MATERIALS  AND  FOODSTUFFS       129 

Other  wool  imported  is  the  coarse  variety  produced  mostly 
in  Persia  and  Asiatic  Turkey  used  in  carpet  manufactur- 
ing. There  are  also  other  classes  of  wool  imported,  nota- 
bly that  of  the  alpaca,  the  Angora  goat,  and  the  Cashmere 
goat. 

The  following  table,  gi\'ing  our  production  and  our  im- 
portation of  wool,  in  millions  of  pounds,  for  different  years, 


Year 


1891 
1900 
1907 
I91O 
I9II 
I912 

1913 
I914 

I915 
1916 
I917 
I918 


Production 


Imports 


285 

129 

288 

156 

298 

125 

321 

264 

318 

137 

304 

193 

296 

195 

290 

247 

285 

308 

288 

584 

281 

372 

299 

379 

shows  how  our  consumption  of  this  product  has  increased. 
The  exports  of  raw  wool  average  less  than  5,000,000 
pounds  annually. 

For  many  years  London  was  the  foremost  wool-market 
of  the  world.  In  the  great  wool  exchange  there  was  as- 
sembled each  season  practically  the  entire  wool-cHp  of  the 
world.  Thither  came  wool  manufacturers  or  their  repre- 
sentatives from  every  country  in  which  wool  was  manu- 
factured, to  purchase  their  year's  supply  at  the  great  auc- 
tions held  at  the  wool  exchange.  The  advantage  of  thus 
assembling  the  wool  of  the  world  in  one  market  was  prin- 
cipally due  to  the  fact  that  there  are  many  different  grades 
of  wool,  each  having  its  special  use,  and  the  manufacturers 
were  thus  enabled  to  select  the  different  kinds  required  all 
at  one  time.  The  producing  countries  have  for  some  years 
been  making  great  and  successful  efforts  to  have  these 


I30     FOREIGN  TRADE   OF   UNITED   STATES 

annual  auctions  held  within  their  own  borders,  and  the 
entire  clip  of  Australia,  the  greatest  wool-producing  coun- 
try, is  now  sold  at  auctions  held  at  Melbourne  and  Sydney. 
These  sales  are  attended  by  wool  manufacturers  from  every 
land,  who,  however,  must  look  elsewhere  for  the  grades  of 
wool  not  grown  in  Australia.  The  great  wool -consuming 
countries  have  likewise  challenged  London's  wool  suprem- 
acy, with  the  result  that  Boston,  New  York,  Philadelphia, 
Bremen,  Hamburg,  Antwerp,  Amsterdam,  and  other  cities 
annually  hold  great  wool-auctions  attended  mostly  by 
domestic  buyers.  London  is  still  the  greatest  international 
wool-market,  though  Boston  actually  handles  a  larger 
volume  of  that  commodity.  The  wool  handled  in  Boston 
is  largely  of  American  production,  while  that  sold  in  Lon- 
don comes  from  many  lands.  Only  recently  has  South 
American  wool  been  handled  in  London;  it  is  of  a  coarse 
variety  which  English  manufacturers  have  refused  to  use. 
French  and  German  manufacturers  have  used  it  to  ad- 
vantage, and  by  a  long  process  of  patient  experimenting 
have  succeeded  in  devising  methods  of  working  it  up  into 
cloth  having  an  even  finer  and  softer  finish  than  that  made 
of  finer  wool. 

Most  of  the  wool  imported  into  the  United  States  is 
purchased  at  the  London  auctions  or  at  the  auctions  held 
in  Australia,  New  Zealand,  or  South  Africa.  It  is  either 
purchased  through  brokers  or  from  wool  merchants,  and 
is  usually  selected  by  the  manufacturer  or  his  representa- 
tive in  person. 

Henry  B.  Smith,  in  The  Sheep  and  Wool  Industry  of 
Australasia,  thus  describes  wool-selling  in  AustraHa: 

The  wool  is  offered  in  large,  well-lighted  stores,  and  is  on  view 
from  six  o'clock  in  the  morning,  at  which  hour  buyers  can  be  seen 
making  a  start,  the  Ught  being  quite  good. 

Two  brokers'  catalogues  are  offered  daily,  with  a  few  exceptions, 
the  combined  offerings  being  limited  to  12,000  bales  per  day. 
Buyers  therefore  need  to  start  early  if  they  wish  to  view  all  the  wool 


RAW  MATERIALS  AND  FOODSTUFFS       131 

offered,  as  the  sale  starts  punctually  at  three  o^cIock  of  the  same 
day  the  wool  is  shown. 

The  auctioneer  at  a  wool  sale  very  seldom  has  to  ask  for  a  bid. 
Usually  as  soon  as  he  mentions  the  catalogue  number  of  the  lot 
being  offered,  the  buyers  fairly  shriek  and  yell  at  him  the  price 
they  are  willing  to  pay,  every  one  in  the  not  unmusical  choir  try- 
ing to  yell  his  bid  louder  than  the  other. 

The  lots  are  knocked  down  and  sold  quicker  than  the  average 
person  can  write  down  the  price  bid.  The  sale  being  over,  the 
wool-brokers  have  the  invoices  for  £100,000  to  £120,000  worth  of 
wool  in  the  hands  of  the  different  buyers  the  same  evening  or  the 
first  thing  the  following  morning. 

The  speed  with  which  everything  connected  with  wool-selling 
in  Australia  is  effected  is  truly  wonderful;  it  speaks  well  for  the 
system  and  manner  in  which  the  sales  are  conducted  by  the  selling 
brokers.  .  .  . 

Farmers  are  supplied  by  the  selling  brokers  with  printed  weight- 
books  and  other  necessary  printed  forms.  .  .  .  Most  of  the  stores 
have  a  railway-siding  running  alongside,  the  bales  being  unloaded 
from  the  railway-trucks  right  on  to  the  store  platforms,  thus  avoid- 
ing all  town  cartage  expenses.  Most  of  the  brokers  have  an  up- 
to-date  shearing-shed  on  the  premises.  A  sum  of  sixpence  per 
sheep  is  charged  for  shearing;  this  includes  cost  of  classing,  baling, 
and  branding  the  wool. 

The  way  in  which  the  wool  merchants  and  brokers  come 
into  possession  of  the  bulk  of  the  wool-clip  of  the  world 
is  of  interest.  In  nearly  every  country  there  are  expert 
wool-buyers,  representing  wool  merchants  or,  occasionally, 
wool  manufacturers,  who  make  it  their  business  to  go  from 
place  to  place  for  the  purpose  of  buying  the  wool  produced 
in  each  section.  These  buyers  purchase  the  wool  either 
from  the  grower  direct,  from  local  wool-dealers,  or  from  local 
storekeepers,  the  latter  ha\dng  taken  the  wool  in  trade 
from  their  customers.  The  large  wool-growers  prefer  to 
sell  to  these  buyers,  thus  eliminating  the  local  middlemen, 
but  they  are  not  always  able  to  do  so,  as  they  are  often 
obhged  to  go  in  debt  for  their  supplies  before  the  wool  is 
ready  for  market.  In  this  case,  they  must  deliver  their 
clip  to  the  local  merchant  who  has  extended  the  credit. 


132     FOREIGN  TRADE   OF  UNITED   STATES 

This  merchant  may  be  the  general  storekeeper,  a  dealer  in 
wool  with  strong  banking  connections,  or  a  commission 
merchant.  In  Australia,  as  soon  as  the  wool  is  placed  in 
the  warehouse  and  before  it  is  auctioned  off  to  foreign 
buyers,  further  advances  are  made  on  it  by  the  local  dealers. 
The  fact  that  the  wool  is  so  often  mortgaged  in  this  way 
works  to  the  disadvantage  of  the  grower,  who  has  to  pay 
high  interest  rates  and  seldom  receives  the  highest  market 
price. 

In  England  local  fairs  have  long  been  held  at  which  wool 
is  sold  by  the  growers  to  buyers  representing  wool  merchants 
or  wool  manufacturers.  Competitive  bidding  among  buy- 
ers for  the  clip  of  large  growers  or  for  the  stock  held  by  a 
local  merchant  is  also  common  in  England  and  Scotland. 

The  methods  used  in  marketing  wool  in  the  United 
States  may  be  briefly  outlined  here.  The  wool  grown  in 
small  quantity  on  the  farms  of  the  East  and  Middle  West 
is  sold  by  the  farmer  either  to  the  general  store  or  to  local 
wool  merchants.  All  kinds  of  fleeces  are  indiscriminately 
stuffed  into  bags  and  sold  without  any  attempt  at  grad- 
ing. The  local  buyer  either  consigns  the  wool  to  a  commis- 
sion house  in  a  primary  market  or  sells  it  outright  to  a 
buyer  representing  a  Boston,  Philadelphia,  or  other  wool 
merchant.  In  either  case,  the  price  paid  is  determined  by 
the  poorest  wool  in  the  lot — which  shows  the  loss  sustained 
by  the  grower  in  neglecting  to  sort  and  grade  his  fleeces. 
The  wool  produced  on  the  great  sheep-ranches  of  the  West 
is  sold  to  better  advantage.  Wool-buyers  representing 
either  wool  merchants  or  manufacturers  keep  in  close  touch 
with  the  producers,  and  often  endeavor  to  make  contracts 
for  the  purchase  of  the  clip  before  the  shearing  season. 
Not  infrequently,  competitive  bids  are  made  by  different 
wool-buyers  either  before  or  after  the  product  is  ready  for 
market.  These  bids  are  usually  in  v/riting,  and  the  grower 
is  free  to  accept  one  or  decline  all.  In  Montana,  Wyoming, 
and    other  great  wool-producing  States  warehouses   are 


RAW  MATERIALS  AND  FOODSTUFFS       133 

provided  where  the  clip  from  each  ranch  may  be  stored. 
Buyers  sample  and  bid  on  the  wool  thus  stored.  When  the 
demand  is  brisk,  the  price  obtained  may  be  even  higher 
than  the  market. 

The  function  of  the  wool-buyer  in  international  trade  is 
one  of  importance,  for  through  his  hands  passes  all  the  wool 
of  commerce.  "The  v/ool-buyer,"  says  a  recent  writer, 
"must  have  at  his  fingers'  ends  not  only  the  probable  pro- 
duction each  year  of  every  part  of  the  United  States,  but 
also  of  every  wool-producing  country  on  the  globe.  He 
must  know  as  accurately  what  is  going  on  in  the  London 
market  as  what  the  demand  is  likely  to  be  in  Lawrence, 
Mass.  He  must  watch  with  equal  care  Boston,  Buenos 
Aires,  and  Australasia.  The  successful  wool-buyer  must 
combine  all  his  world-wide  data  and  interpret  them. 
Upon  the  soundness  of  his  deductions  depends  a  profit 
or  loss  which  may  reach  miUions  in  the  aggregate." 

Both  the  wool-buyer  and  his  principal,  the  wool  merchant 
of  the  primary  market,  seem  to  be  necessary  as  interme- 
diaries in  the  wool  trade,  since  the  grades  of  wool  needed 
by  the  manufacturer  are  numerous.  It  is  thus  to  the  ad- 
vantage of  the  latter  to  purchase  from  the  carefully  cleaned 
and  graded  stock  of  the  wool  merchant  just  the  quantity 
and  variety  of  wool  he  desires  rather  than  to  attempt  to 
secure  his  supply  from  the  growers. 

Hides  and  Skins. — In  looking  over  the  list  of  imports 
of  the  United  States  for  1915,  we  find  that  "hides  and  skins, 
other  than  fur,"  were  imported  that  year  to  the  value  of 
$104,177,106,  while  leather  and  manufactures  of  leather 
exported  were  valued  at  $120,727,156.  This  indicates  the 
importance  of  our  leather  industry,  which  not  only  supplies 
our  enormous  domestic  demand,  but  also  has  provided  a 
surplus  for  export  averaging  over  $57,000,000  in  normal 
years.  The  uses  for  leather  are  many,  but  boots  and  shoes, 
gloves,  purses,  hand-bags,  suitcases,  belts,  harness,  saddles, 
machine-belting,  furniture  and  automobile  upholstery  are 


134     FOREIGN  TRADE   OF   UNITED   STATES 

the  leading  articles  requiring  this  material.  The  domestic 
supply  of  hides  and  skins  for  the  manufacture  of  leather 
falls  far  short  of  the  demand,  necessitating  our  drawing 
upon  other  countries  for  about  one-third  of  our  supply. 
The  hides  and  skins  most  used  are  those  of  the  cow,  steer, 
calf,  goat,  sheep,  chamois,  pig,  horse,  colt,  deer,  alligator, 
kangaroo,  bison,  seal,  and  porpoise. 

The  centre  of  the  leather-manufacturing  industry  of  the 
United  States  has  long  been  Philadelphia,  which  early  de- 
veloped this  industry,  largely  because  of  the  plentiful 
supply  of  the  essential  oak  and  hemlock,  the  bark  of  which 
is  used  in  tanning.  It  is  estimated  that  about  two- thirds 
of  the  goatskins  that  enter  international  trade  are  assem- 
bled at  Philadelphia,  and  that  one-half  of  the  sole  leather 
and  nine-tenths  of  the  glazed  kid  and  colt  skin  manufac- 
tured in  the  United  States  are  made  in  that  city.  New 
York  is  the  centre  of  the  belting  industry,  and  here  are 
turned  out  each  year  thousands  of  belts  of  great  strength 
and  durability  for  use  in  various  manufacturing  industries. 
Boston  is  also  a  great  leather-market.  The  leather  made 
in  the  centres  mentioned  is  purchased  by  boot  and  shoe  and 
other  manufacturers,  who  seldom  purchase  the  raw  hides 
and  skins. 

The  leather  industry  is  controlled  largely  by  a  few  great 
corporations,  who  draw  upon  every  part  of  the  world  for 
the  hides  and  skins  required.  Cattle  hides  are  supplied 
by  the  United  States,  Canada,  Mexico,  and  South  America. 
These  are  mostly  assembled  by  the  large  meat-packing 
concerns,  which  own  tanneries  and  dispose  of  the  hides 
after  they  are  tanned.  Calfskins  are  largely  obtained 
from  the  dairy  farms  of  the  United  States,  where  the  calves 
are  sold  for  veal,  and  their  skins  later  converted  into  high- 
grade  leather.  In  passing,  it  may  be  noted  that  this  whole- 
sale slaughter  of  calves  is  responsible  for  our  dwindling 
supply  of  cattle  and  dairy  products. 

The  hides  that  we  obtain  aknost  entirely  by  importa- 


RAW  MATERIALS  AND  FOODSTUFFS       135 

tion  are  those  of  the  goat  and  the  chamois.  These  come 
from  the  hill  countries  of  India,  from  Switzerland,  Russia, 
Spain,  northern  Africa,  China,  South  America,  Turkey, 
Arabia,  and  the  Balkan  States.  Goats  are  used  for  food 
in  most  of  these  countries  and  their  skins  carefully  pre- 
served, to  be  sold  at  stated  periods  to  buyers  who  make 
regular  visits  to  the  local  markets,  where  the  skins  are 
brought  by  the  breeders.  These  buyers  represent  dealers 
of  the  primary  markets,  who  export  the  hides  in  ship-load 
lots.  London  merchants  secure  great  quantities  of  these, 
and  re-export  them  to  the  United  States.  Marseilles  is 
another  important  market  for  hides  and  skins,  especially 
for  those  of  northern  Africa.  The  product  of  China  and 
South  America  is  largely  imported  direct  by  American 
leather  companies,  who  buy  either  through  brokers  or  their 
own  representatives  maintained  there  for  that  purpose. 
Many  of  these  are  natives,  whose  familiarity  with  the  cus- 
toms and  traditions  of  the  people  enable  them  to  procure 
the  hides  at  the  best  prices. 

Rubber  and  Gutta-Percha. — India-rubber,  or  caoutchouc, 
is  obtained  from  the  juice,  called  latex,  of  certain  tropical 
trees,  which  are  tapped  in  much  the  same  way  as  the 
sugar-maple  is  for  its  sap.  These  trees  are  grown  in  the 
wild  state  in  tropical  jungles,  or  on  cultivated  plantations 
in  tropical  countries.  Until  recently  the  supply  of  wild 
rubber  greatly  exceeded  that  produced  on  plantations,  but 
the  increased  use  of  rubber  for  automobile  tires  and  other 
purposes  has  so  broadened  the  demand  that  it  has  been 
found  profitable  to  plant  and  cultivate  great  areas.  About 
two-thirds  of  the  rubber  of  commerce  is  now  produced  on 
plantations. 

Most  of  the  wild  rubber  is  produced  in  the  tropical  forests 
of  the  Amazon  and  its  tributaries  in  Brazil,  and  two- thirds 
of  this  is  regularly  exported  to  the  United  States.  The 
city  of  Manaos  on  the  Negro  River,  one  thousand  miles 
from  the  Atlantic,  is  the  centre  of  the  industry.     The  rub- 


136     FOREIGN  TRADE   OF   UNITED   STATES 

ber-trees  are  on  public  land  and  concessions  are  granted 
by  the  government  to  individuals  or  companies.  The  ex- 
penses incident  to  the  gathering  of  the  crop  are  heavy; 
the  concessionaire  advances  the  rubber-gatherers  he  em- 
ploys all  the  necessary  supplies  for  the  season,  including 
groceries,  clothing,  utensils,  firearms,  and  ammunition. 
He  receives  those  supplies  from  a  commission  house  at 
Manaos,  to  which  he  later  delivers  the  crop.  If  the  sea- 
son is  a  good  one,  the  concessionaire  may  make  a  fortune, 
but  if  conditions  are  unfavorable,  the  returns  for  the  sea- 
son may  be  insufficient  to  pay  for  the  supplies. 

The  rubber  is  delivered  to  the  commission  house  in  the 
form  of  biscuits  weighing  several  pounds  each.  The  com- 
mission house  consigns  the  product  in  cargo  lots  to  New 
York  brokers  or  sells  it  outright  to  American  importers. 
About  two-thirds  of  Brazil's  rubber  yield  is  thus  exported 
to  the  United  States,  most  of  the  balance  going  to  British 
importers.  American  rubber  manufacturers  thus  obtain 
their  supply  either  through  brokers  or  importing  houses, 
or  through  direct  relations  with  the  Brazilian  commission 
houses. 

It  is  estimated  that  fully  nine-tenths  of  the  supply  of 
plantation  rubber  is  produced  on  plantations  owned  by 
British  capitalists.  These  are  located  mostly  in  British 
India  and  in  the  Dutch  East  Indies.  These  plantations 
are  controlled  by  a  single  great  investment  corporation, 
which  brings  each  season's  output  to  England,  where  it  is 
either  manufactured  or  sold  to  buyers  for  manufacturers 
of  other  countries.  The  United  States  manufactures 
about  two-thirds  of  the  rubber  used  in  the  world.  Our 
supremacy  in  this  industry  is  largely  due  to  the  discovery 
and  use  of  highly  efficient  methods  in  manufacture. 

Gutta-percha  is  similar  to  rubber  in  being  obtained  from 
the  juice  or  milk  of  trees.  It  is  produced  mostly  in  the 
Philippines,  Borneo,  and  Sumatra.  It  is  used  as  an  in- 
sulating material  in  the  construction  of  ocean  cables,  and 


RAW  MATERIALS  AND  FOODSTUFFS       137 

also  in  the  manufacture  of  golf-balls  and  similar  articles. 
It  is  imported  either  directly  by  the  manufacturers  or  by 
brokers  acting  for  commission  houses  located  at  the  cen- 
tres of  production. 

Sugar. — The  consumption  of  cane  and  beet  sugar  in  the 
United  States  totals  nearly  9,000,000,000  pounds  annually, 
ivhich  means  that  our  per  capita  consumption  falls  only  a 
little  short  of  90  pounds.  About  22  per  cent  of  this  is 
produced  in  the  United  States;  nearly  25  per  cent  is  ob- 
tained from  Hawaii,  Porto  Rico,  and  the  Philippines; 
the  balance,  or  about  53  per  cent,  is  imported  chiefly 
from  Cuba.  About  one-third  of  the  domestic  production 
is  cane-sugar.  Our  ability  to  produce  a  much  larger  pro- 
portion of  the  sugar  consumed  is  unquestioned.  The 
sugar  trade  in  the  United  States  is  absolutely  controlled 
by  a  few  corporations  or  trusts,  which  own  or  control  most 
of  the  plantations  in  our  island  possessions  and  Cuba. 
Consequently,  the  importation  of  sugar  is  made  directly 
by  the  producers,  who  own  refineries  in  the  United  States. 
Most  of  the  sugar  is  thus  imported  in  its  raw  state. 

Tea. — Formerly  most  of  the  tea  used  in  the  United  States 
came  from  China  and  Japan,  but  Ceylon  and  India  teas 
have  largely  replaced  these  in  recent  years.  The  teas  of 
India  and  Ceylon  are  grown  on  great  plantations,  owned 
mostly  by  British  firms  of  immense  capital  and  influence, 
which  have  the  product  packed  and  shipped  to  London 
each  season.  In  London  it  is  placed  in  bonded  warehouses, 
as  there  is  a  high  duty  on  its  importation,  and  is  kept  in 
these  warehouses  for  a  period  of  some  months.  It  is  sold 
at  great  public  auctions  held  at  Mincing  Lane,  London, 
which  are  attended  by  wholesale  tea  merchants  from  many 
countries.  An  elaborate  system  of  sampling  and  tasting 
has  been  developed,  and  the  grades  are  most  exactly  de- 
fined and  separated.  Some  of  the  largest  owners  of  tea- 
plantations  in  Ceylon  and  India  sell  most  of  their  product, 
put  up  in  cans  holding  as  little  as  a  quarter  of  a  pound  01 


138     FOREIGN   TRADE   OF   UNITED    STATES 

in  chests  containing  large  quantities,  direct  to  wholesale 
merchants  or  jobbers  without  the  formality  of  an  auction. 
Much  Chinese  tea  is  imported  into  England,  but  the  greater 
part  of  this  is  re-exported  by  tea  merchants,  some  of  it 
being  purchased  by  American  tea-importers.  Ceylon, 
India,  and  Japan  tea  is  handled  largely  by  the  use  of 
machinery,  while  that  of  China  is  still  picked,  cured,  and 
packed  by  hand. 

Chinese  and  Japanese  teas  are  grown  on  small  farms  or 
even  in  the  back  yards  of  the  peasants,  who  cultivate  it 
with  the  greatest  care,  pick  it,  and  cure  it  sufficiently 
to  retain  the  flavor.  It  is  sold  to  tea  merchants  or 
commission  men,  through  buyers  who  make  regular  trips 
through  the  tea-producing  territory.  It  is  then  taken  to 
great  ^' hongs,"  or  warehouses,  where  it  is  dried,  cured,  and 
prepared  for  market.  From  the  '^ hongs"  it  is  sent  to  the 
ports  and  shipped,  or  sold  to  export  merchants,  who  repack 
it  and  consign  it  to  importers  located  at  the  ports  of  the 
country  to  which  it  is  shipped.  American  tea-importing 
merchants  either  buy  their  teas  outright  from  the  Chinese 
and  Japanese  exporters,  or  handle  it  on  a  commission 
basis;  the  former  method  is  the  one  commonly  followed. 
The  importer  distributes  it  to  wholesalers  or  jobbers, 
who,  in  turn,  sell  it  to  retail  dealers. 

It  has  been  demonstrated  that  tea  can  be  grown  success- 
fully in  many  of  our  Southern  States,  but  the  labor  required 
in  its  production  is  so  great  that  it  does  not  pay  in  this 
country.  We  annually  import  about  $17,000  000  worth  of 
this  beverage. 

Raw  Silk. — Another  semitropical  product  that  there  is 
every  reason  to  believe  might  be  produced  successfully  in 
the  United  States  is  raw  silk.  The  Department  of  Agri- 
culture has  for  some  time  been  carr^dng  on  experiments 
with  silkworms,  and  the  results  have  been  satisfactory. 
Much  labor  and  patient  handling  is  required  for  success  in 
this  industry,  which  accounts  for  the  slow  progress  made  by 


RAW  MATERIALS  AND  FOODSTUFFS       139 

those  unaccustomed  to  the  industry.  Our  raw-silk  im- 
ports in  19 1 5  exceeded  $83,000,000  in  value,  most  of  it 
coming  from  Japan,  China,  Italy,  France,  Spain,  and 
India.  We  regularly  import  twice  as  much  silk  from  Japan 
as  from  the  whole  of  Europe.  About  three-fourths  of  the 
raw  silk  imported  is  brought  from  Japan  and  China  by 
American  importers  located  at  San  Francisco.  It  is 
shipped  from  that  port  in  special  trains  to  New  York, 
which  is  the  greatest  raw-silk  market,  next  to  Shanghai, 
in  the  world.  The  silk  is  handled  in  New  York  either  by 
commission  merchants,  brokers,  or  by  importers  main- 
taining branches  in  San  Francisco.  There  it  is  graded, 
sampled,  and  sold  to  buyers  for  silk  manufacturers.  The 
United  States  imports  about  one-half  of  the  raw  silk  that 
enters  commerce;  it  is,  therefore,  the  greatest  silk-manu- 
facturing country  in  the  world.  Paterson,  N.  J.,  is  the 
centre  of  silk  manufactures  in  this  country. 

Coffee.— The  United  States  is  the  leading  coffee- consum- 
ing country  in  the  world,  nearly  1,000,000,000  pounds  be- 
ing used  here  annually.  The  per  capita  consumption  of 
this  beverage  is,  therefore,  about  10  pounds  a  year.  With 
the  exception  of  about  9,000,000  pounds  obtained  from 
Hawaii  and  Porto  Rico,  the  immense  quantity  consumed 
is  obtained  from  foreign  countries,  chiefly  Brazil,  Colombia, 
Venezuela,  Central  America,  and  Mexico.  By  far  the 
largest  amount  comes  from  Brazil,  which  supplies  us  T\^th 
about  775,000,000  pounds  annually.  This  coffee  is  grown 
on  great  plantations  in  the  states  of  Sao  Paulo,  Rio  de 
Janeiro,  Minas  Geraes,  and  Espirito  Santo.  A  coffee- 
plantation  with  its  carefully  pruned  trees,  with  their  dark- 
green  shiny  leaves,  white  blossoms,  and  red  berries,  is  a 
beautiful  sight.  The  harvesting  of  the  berry  begins  in 
April  or  May  and  lasts  until  August.  Each  tree  yields 
from  two  to  three  pounds  of  berries,  which  are  gathered 
by  hand.  i\s  soon  as  it  is  harvested  the  coft'ee  is  taken  by 
the  planter  to  a  central  station,  where  it  is  cleaned,  dried, 


I40     FOREIGN  TRADE   OF   UNITED   STATES 

and  put  through  a  machine  that  hulls  and  polishes  it.  It 
is  then  packed  in  jute  bags  and  shipped  to  a  broker  either 
at  Santos  or  Rio  de  Janeiro,  who  handles  it  at  a  3  per 
cent  commission. 

The  broker  grades  and  repacks  the  coffee  and  then  dis- 
poses of  it  in  one  of  three  ways : 

1.  He  sells  it  direct  to  the  buyers  of  American  or  other 
importing  houses. 

2.  He  sells  it  to  American  or  other  importers  on  cable 
quotation. 

3.  He  sells  it  to  local  exporting  houses. 

Some  Brazilian  coffee  is  consigned  in  cargo  lots  to  New 
York  or  New  Orleans  coffee-brokers,  who,  upon  cabled 
instructions  from  the  consignee,  display  samples  and  sell 
on  a  fixed  commission  oi  }4  or  yi  per  cent.  The  coffee  is 
shipped  mostly  by  tramp  steamers.  New  York  and  New 
Orleans  are  the  leading  coffee-markets  of  the  United  States. 

The  coffee-broker  in  New  York  or  New  Orleans  sells 
through  brokers  to  wholesalers  or  jobbers,  who  are  usually 
the  roasters.  The  movement  of  coffee  after  it  reaches  the 
United  States  is  thus  described: 

Green  coffee  is  another  product  that  is  sold  principally 
through  brokers — from  the  importer  through  the  broker 
to  the  roaster  (usually  the  wholesale  grocer).  Here,  again, 
the  principal  economy  is  due  to  the  fact  that  the  broker 
sells  for  a  number  of  different  houses.  One  or  two  of  the 
largest  coffee-importing  houses  have  their  own  sales 
organizations  with  salaried  representatives  in  all  large 
cities,  who  sell  direct  to  roasters.  One  large  New  York 
house  has  its  own  representatives  in  five  of  the  largest 
trade  centres  in  the  country  and  uses  brokers  in  other 
cities.  .  .  . 

Usually  a  coffee-broker  has  exclusive  sale  for  his  princi- 
pal in  the  market  in  which  he  is  located.  .  .  .  The  cus- 
tomary brokerage  fee  is  15  cents  a  bag  of  132  pounds, 


RAW  MATERIALS  AND  FOODSTUFFS       141 

which  amounts  to  about  one-eighth  of  a  cent  a  pound,  or 
about  I  per  cent  of  its  value.  Sometimes  the  coffee-broker 
also  represents  a  foreign  exporting  house  direct,  rather 
than  a  domestic  importer.* 

BIBLIOGRAPHY 

Akers,  C.  E.  The  Rubber  Industry  in  Brazil  and  the  Orient.  Lon- 
don, 1914. 

Beadle,  Clayton.  Rubber  ;  the  Production  and  Utilization  of  the 
Raw  Product,     London  and  New  York,  191 1. 

Bean,  C.  E.  W.     On  the  Wool  Track.     London,  1910. 

Brannt,  W.  T.  India-Rubber,  Gutta-Percha,  and  Balata.  Phila- 
delphia, 1900. 

Brazil,  the  Land  of  Rubber.     New  York,  191 2. 

Bro'vv'N,  Harold.  Rubber  ;  Its  Sources,  Cidtivation,  and  Prepara- 
tion.    London. 

Canada.  Department  of  Agriculture.  Review  of  Co-operative 
Wool  Sales  in  Canada.     Ottawa,  191 7. 

Cave,  Henry  W.  Golden  Tips;  a  Description  of  Ceylon  and  Its 
Great  Tea  Industry.     London,  1900. 

Cherington,  Paul  T.  The  Wool  Industry  of  tlie  United  States, 
Chapters  10,  12.     New  York,  1916. 

Coffew,  W.  C.  Growing  and  Marketing  Wool.  Champaign,  111., 
1912. 

Geerligs,  H,  C.  p.  The  World's  Cane-Sugar  Industry.  New  York, 
1912. 

Henry,  J.  H.  Thirty-Five  Years  of  Oil  Transportation — the  Evolu- 
tion of  the  Tank-Steamer.     New  York,  1907. 

Ibbetson,  a.     Tea  from  Grower  to  Consumer.     London,  1910. 

Keable,  B.  B.     Cofee  from  Grower  to  Consumer.     London,  1910. 

Marshall,  T.  R.     Wool-Growers  and  th£  Wool  Trade.     1915. 

Sheffeld,  Charles  A.  Silk ;  Its  Origin,  Cidture,  and  Manufac- 
ture.    Florence,  Mass.,  191 1. 

Smith,  Henry  B.  The  Sheep  and  Wool  Industry  of  Australi-a. 
Melbourne,  19 14. 

Surface,  George  T.     The  Story  of  Sugar.     New  York,  1910. 

Thurber,  F.  B.     Cofee  from  Plantation  to  Cup.     New  York,  188.3. 

Torrey,  Joseph.  Tlie  Rubber  Industry.  Official  Report  of  the 
4th  International  Rubber  Congress  held  in  London  in  1914. 
London,  1914. 

Tower,  Walter.     The  Story  of  Oil.     New  York,  190Q. 

*  Quarterly  Journal  of  Economics,  vol.  32,  p.  598,  August,  1917. 


CHAPTER  XII 

THE  TRANSPORTATION  OF  OUR  FOREIGN 
COMMERCE 

The  commodities  entering  our  foreign  trade  depend 
upon  the  railroads,  inland  waterways,  and  ocean  carriers 
for  their  transportation.  The  products  of  interior  points 
must  first  be  conveyed  to  the  ports,  either  by  the  railroads 
or  by  the  inland  waterways,  and  thence  taken  by  ocean 
carriers  to  the  foreign  ports  of  destination.  The  network 
of  railways  that  penetrate  to  every  part  of  the  country 
collect  from  the  points  of  production  the  raw  materials 
and  foodstuffs  for  export,  as  well  as  those  to  be  retained 
for  domestic  consumption,  and  bring  them  to  some  central 
distributing  point,  such  as  Chicago,  St.  Louis,  Kansas  City, 
Omaha,  or  Duluth.  Here,  also,  are  assembled  the  manu- 
factured products  of  the  surrounding  territory.  The  sur- 
plus commodities  of  all  kinds  that  are  destined  for  export 
are  then  forwarded  to  the  seaboard,  either  by  rail  or  by 
water,  or  by  a  combination  of  the  two.  At  the  ports  these 
commodities  are  assembled  at  the  wharfs,  where  they 
are  loaded  on  the  outbound  vessels  to  be  conveyed  to  the 
foreign  ports  of  destination. 

Our  imports  from  overseas  enter  the  country  through 
the  ports,  but  only  a  fraction  remain  there.  The  bulk 
are  taken  up  by  the  railroads  and  carried  to  the  inland 
distributing  points,  where  they  are  despatched  as  needed 
to  scattered  towns  and  hamlets  of  widely  separated  re- 
gions. A  small  portion  of  our  imports  is  brought  to  in- 
terior points  over  our  inland  waterwa3^s.  Inland  trans- 
portation facilities,  then,  are  quite  as  important  a  factor 
in  our  foreign  trade  as  are  ocean  carriers.     Only  those 

142 


OUR   FOREIGN    COMMERCE  143 

exports  produced  at  the  seaboard  and  those  imports  con- 
sumed there  are  in  any  way  independent  of  the  wonder- 
ful network  of  railways  and  waterways  with  which  our 
country  is  provided. 

A  consideration  of  the  facilities  now  available  for  the 
transportation  of  our  foreign  as  well  as  of  our  domestic 
commerce  is  essential  to  the  understanding  of  the  organ- 
ization of  our  foreign  trade.  These  will  now  be  discussed 
under  the  following  heads: 

1.  Railroads. 

2.  Inland  waterways. 

3.  Ports  and  terminal  facilities. 

4.  The  American  merchant  marine. 

5.  Ocean  trade  routes. 

Railroads  of  the  United  States. — The  railroad  mile- 
age of  the  United  States,  exclusive  of  that  owned  by  switch- 
ing and  terminal  companies,  was  in  1914  252,230  miles. 
This  is  about  40,000  miles  more  than  the  total  mileage  of 
all  the  railroads  of  Europe,  and  is  approximately  three- 
eighths  of  the  railroad  mileage  of  the  world.  The  rail- 
roads were  built  by  a  large  number  of  independent  com- 
panies, many  of  which  received  Uberal  aid  and  encourage- 
ment from  the  federal  government,  but  by  a  gradual 
process  of  consoHdation  they  have  been  brought  under  the 
control  of  a  small  number  of  capitalistic  groups,  so  that 
in  191 7  four-fifths  of  the  railroad  mileage  of  the  country- 
were  controlled  by  less  than  a  dozen  financial  interests. 
The  right  of  the  federal  government  to  control  the  rail- 
roads through  preventing  unfair  discrimination  in  rates, 
pooling,  the  granting  of  rebates,  and  other  unfair  practices, 
notoriously  common  for  many  years,  has  finally  been  es- 
tablished. The  general  regulation  of  railroads  engaged  in 
interstate  commerce  rests  with  the  Interstate  Commerce 
Coromission,  created  by  act  of  Congress  in  iSSj.  The 
powers  of  this  commission  have  been  enlarged  from  time 
to  time;    its  decisions  have  proven,  in  the  main,  highly 


144     FOREIGN   TRADE   OF   UNITED   STATES 

satisfactory.  Before  the  railroads  were  taken  over  by 
the  federal  government  in  January,  1918,  those  in  control 
were  advocating  the  federal  incorporation  of  interstate 
carriers,  thus  removing  them  from  the  jurisdiction  of  the 
various  States. 

A  convenient  grouping  of  the  railroads  of  the  United 
States  is  in  three  divisions,  as  follows: 

1.  The  territory   north   of   the  Potomac   and   Ohio 
Rivers  and  east  of  the  Mississippi. 

2.  The   territory   south   of   the  Potomac   and   Ohio 
Rivers  and  east  of  the  Mississippi. 

3.  The  territory  west  of  the  Mississippi. 

In  the  first  division  are  the  New  England  roads  and  the 
trunk  lines.  The  New  England  roads  mostly  terminate 
at  Boston.  The  trunk  lines  connect  the  Great  Lakes  and 
the  Ohio  River  regions  with  the  Atlantic  coast.  Buffalo, 
Cleveland,  Detroit,  Toledo,  Chicago,  St.  Louis,  Indian- 
apolis, Cincinnati,  and  Pittsburg  are  leading  commercial 
centres  served  by  these  roads.  This  group  of  roads,  with 
a  network  of  ramifications  extending  to  every  part  of  the 
territory  covered,  has  the  most  highly  developed  manu- 
facturing region  of  the  United  States  in  its  territory. 
Hence  it  carries  the  largest  traffic  of  any  group. 

In  the  second  division  are  the  Southern  roads,  which  have 
an  im.mense  traffic  in  cotton,  lumber,  and  coal,  which  are 
carried  from  interior  points  to  the  coast  cities  of  Norfolk, 
Wilmington,  Charleston,  Savannah,  Jacksonville,  Tampa, 
Pensacola,  and  New  Orleans. 

In  the  third  division,  that  west  of  the  Mississippi,  are  the 
southwestern  roads,  the  Granger  roads,  and  the  great 
transcontinental  Hues.  The  Southwestern  roads  furnish 
an  outlet  for  the  grain,  lumber,  live  stock,  and  cotton  of 
the  region  southwest  of  St.  Louis.  The  principal  cities 
served  by  these  roads  are  St.  Louis,  Memphis,  and  the 
Gulf  ports  of  Galveston  and  New  Orleans. 

The  Granger  roads,  which  were  originally  built  or  pro- 


OUR  FOREIGN   COMMERCE  145 

jected  by  farmers  of  the  territory  they  now  serve,  carry 
grain,  live  stock,  and  other  agricultural  products  to  the 
great  distributing  centres  of  Chicago,  St.  Louis,  Kansas 
City,  and  Duluth. 

The  transcontinental  lines  are  those  roads  that  connect 
the  Pacific  coast  with  Chicago,  St.  Louis,  and  other  Mis- 
sissippi Valley  points.  There  are  three  such  lines  in  the 
North  and  six  in  the  South.  The  Northern  lines  are  the 
Great  Northern,  the  Northern  Pacific,  and  the  Chicago, 
Milwaukee,  and  St.  Paul  Railway,  all  connecting  Puget 
Sound  points  with  the  ports  of  Lake  Superior  and  with 
Chicago  and  St.  Louis.  The  Southern  transcontinental 
lines  include  the  Southern  Pacific,  the  Union  Pacific,  the 
Atchison,  Topeka,  and  Santa  Fe,  and  the  Western  Pacific. 
Two  other  lines  extend  from  the  coast  to  Salt  Lake  City, 
v/here  connections  are  made  for  Chicago  and  other  Missis- 
sippi Valley  points.  These  lines  are  the  Oregon  Short 
Line  from  Portland,  and  the  Los  Angeles  and  Salt  Lake 
Railway  from  Los  Angeles. 

Inland  Waterways. — The  navigable  rivers  and  lakes  of 
the  United  States,  with  the  ship  canals,  make  a  wonder- 
ful system  of  inland  waterways,  over  which  a  much  larger 
traffic  than  is  now  carried  could  be  handled  to  advantage. 
With  the  exception  of  the  Great  Lakes,  our  inland  water- 
v/ays  have  been  allowed  to  fall  into  comparative  disuse. 
The  Mississippi  River  alone,  with  its  navigable  branches, 
might  be  used  to  furnish  cheap  transportation  for  thou- 
sands of  tons  of  freight  that  are  now  shipped  by  railroad 
to  the  Atlantic  coast  ports.  A  more  extensive  use  of 
these  natural  arteries  of  trade,  with  the  resultant  lowering 
of  freight  costs,  w^ould  enable  us  to  compete  on  more  favor- 
able terms  in  the  markets  of  the  world.  When  the  rail- 
roads adopt  the  practice  of  routing  freight  through,  even 
when  it  is  carried  for  a  part  of  the  distance  over  inland 
waterways  other  than  the  Great  Lakes,  when  the  federal 
government  adopts  a  more  uniform  and  more  scientific 


146    FOREIGN   TRADE   OF   UNITED   STATES 

method  of  making  appropriations  for  the  improvement  of 
such  waterways,  and  when  the  financial  interests  of  the 
nation  lend  their  support  to  the  greater  utilization  of  our 
rivers  and  canals,  the  advantage  to  the  farmers,  manu- 
facturers, and  merchants  of  the  interior  will  be  reflected 
in  a  greater  production  of  commodities  at  a  decreased  cost 
to  the  consumer.  The  New  York  Barge  Canal — an  en- 
largement of  the  Erie  Canal — has  just  been  built  in  order 
to  win  back  to  New  York  her  primacy  in  the  export  grain 
trade,  which  had  been  lost  owing  to  the  competition  of  the 
water  routes  by  way  of  the  St.  Lawrence  on  the  north, 
and  of  the  short  rail  routes  to  the  Gulf  ports  in  the  south. 
Other  projected  canals  include  one  to  connect  the  Ohio 
River  mth  Lake  Erie  from  Pittsburg,  another  to  connect 
Lake  Erie  with  Lake  Michigan  in  a  direct  line,  and  a  series 
of  canals  to  connect  Lake  Michigan  with  the  Mississippi 
River. 

The  Great  Lakes  afford  in  conjunction  with  the  Erie 
Canal  a  through  waterway  from  the  great  lumber,  grain, 
iron,  coal,  and  copper  producing  regions  along  or  near 
their  borders  to  the  Atlantic  seaboard.  Traffic  in  these 
commodities  is  enormous,  that  passing  through  the  St. 
Marys  or  Soo  Canal  far  exceeding  in  tonnage  the  freight 
carried  through  any  other  canal  in  the  world.  The  great 
assembling  and  shipping  centres  of  the  Great  Lakes  region 
are  Duluth  and  Superior,  Milwaukee  and  Chicago.  To 
Duluth,  the  head  of  navigation  on  the  Great  Lakes,  and 
Superior,  just  opposite  Duluth,  immense  quantities  of 
grain,  flour,  lumber,  iron  ore,  and  copper  are  assembled 
by  the  numerous  railways  that  penetrate  to  the  remote 
corners  of  Minnesota,  Wisconsin,  and  the  Dakotas,  and 
thence  shipped  to  the  manufacturing  cities  along  Lake 
Erie  or  through  to  Buffalo,  where  part  continues  by  way 
of  the  Erie  Canal  to  the  seaboard,  and  a  larger  part  is  car- 
ried by  rail  either  to  New  York,  Boston,  Philadelphia,  or 
elsewhere. 


OUR  FOREIGN  COMMERCE  147 

Chicago,  the  greatest  railroad  centre  in  the  world,  col- 
lects the  products  of  the  great  northern  section  of  the 
United  States,  and  ships  such  bulky  commodities  as  grain, 
lumber,  iron  ore,  and  coal  over  the  Great  Lakes.  Those 
commodities  intended  for  export  are  transshipped  at  Buf- 
falo, and  carried  by  rail  or  water  to  New  York.  Not  all  of 
the  commodities  enumerated  are  shipped  by  water;  the 
trunk  lines  carry  great  quantities  of  coal,  iron,  lumber,  and 
grain,  making  rates  that,  w^hen  time  is  a  factor,  secure  a 
large  volume  of  such  traffic.  During  the  winter  months, 
when  the  Lakes  are  frozen,  all  the  traffic  is  necessarily 
diverted  to  the  railways. 

Ports  and  Terminal  Facilities. — The  seaport  is  the  gate- 
way through  which  nine-tenths  of  our  foreign  trade  pass. 
From  every  producing  section  of  the  country  the  commod- 
ities that  are  destined  for  other  countries  are  sent  by  rail 
or  water  to  the  ports,  to  be  taken  as  line  or  charter  traffic 
to  their  destination  overseas.  The  facihties  provided  at 
the  ports  for  the  handling  of  freight  received  there  for 
transshipment  vary  greatly.  As  a  rule,  the  largest  ports 
have  a  succession  of  piers  or  wharfs  extending  at  right 
angles  to  the  shore-line  along  which  the  vessels  may  lie 
while  loading  or  discharging  cargo.  Ports  that  have  closed 
harbors  and  sufficient  space  for  a  great  number  of  piers 
and  wharfs  have  a  great  advantage  over  those  that  are 
mere  open  roadsteads,  without  protection  from  winds  and 
storms,  such  as  are  common  along  the  coasts  of  South 
America.  In  such  an  open  roadstead  freight  must  be  dis- 
charged into  lighters,  or  small  open  boats.  When  the  water 
is  rough,  it  is  sometimes  impossible  to  discharge  a  cargo 
in  an  open  roadstead,  and  a  ship  is  obliged  either  to  wait 
for  days  or  to  carry  the  cargo  destined  for  that  port  to 
another  or  to  keep  it  on  board  until  the  next  trip. 

The  Atlantic  and  Gulf  coasts  of  the  United  States  have 
numerous  closed  harbors,  which  have  been  so  improved 
as  to  afford  facilities  for  the  loading  and  unloading  of 


148     FOREIGN   TRADE  OF   UNITED   STATES 

hundreds  of  ships  at  a  time.  A  large  part  of  the  work  of 
loading  and  unloading  is  done  by  the  aid  of  machinery  run 
by  electric  or  steam  power.  Hydraulic  cranes,  hoisting 
apparatus  by  which  twenty  tons  or  more  of  merchandise 
can  be  lifted  at  one  time,  huge  coal-buckets  and  steam- 
shovels,  elevators,  and  other  devices  are  available  in  the 
large  ports.  Ships  are  thus  able  to  load  or  unload  in  a 
few  hours,  instead  of  requiring  several  days,  as  was  formerly 
the  case.  The  floating  elevators,  which  are  towed  alongside 
the  vessel  in  which  wheat  is  carried,  furnish  an  excellent 
example  of  the  aid  such  devices  are  to  commerce.  By 
their  use  a  cargo  of  300,000  bushels  of  wheat  can  be  loaded 
in  two  hours. 

The  federal  government,  through  the  power  conferred 
by  the  Constitution  to  regulate  commerce,  has  control 
over  the  channels  of  rivers  and  of  harbors  in  general, 
though  the  State  usually  has  control  of  docks,  wharfs, 
and  the  mechanical  appliances  provided  for  the  loading 
and  unloading  of  vessels.  This  authority  is  sometimes 
conferred  upon  the  municipality,  as  in  the  case  of  New 
York  City,  where  most  of  the  wharfs  and  piers  are  owned 
by  the  city  and  administered  by  a  city  official,  known  as 
the  harbor  master.  In  Philadelphia,  most  of  the  harbor 
front  is  held  in  private  ownership,  but  it  is  subject  to  the 
regulations  of  the  State  and  city,  and  is  administered  by  a 
public  official.  In  California  the  harbors  are  under  the 
control  of  the  State,  that  of  San  Francisco  being  owned 
and  managed  by  the  State.  Since  the  expenditures  for 
wharfs,  piers,  facilities  for  handling  merchandise,  ware- 
houses, and  elevators  reach  enormous  proportions,  these 
are  usually  divided  among  the  national  and  State  govern- 
ments, with  supplementary  improvements  made  by  private 
capital. 

A  greater  co-ordination  between  railroads  and  port  ad- 
ministration is  needed,  so  that  each  might  plan  its  terminals 
with  due  reference  to  the  other.     As  it  is  now,  railroad 


OUR  FOREIGN  COMMERCE  149 

freight  destined  for  ocean  shipment  is  often  unloaded  miles 
away  from  the  wharf,  to  which  it  must  be  carted,  causing 
unnecessary  expense  and  trouble.  Piers  having  railroad 
tracks  in  the  middle,  with  ships  moored  at  either  side,  en- 
able a  vessel  to  be  loaded  cheaply  and  expeditiously. 

About  half  of  our  foreign  trade  passes  through  the  port 
of  New  York;  a  larger  proportion  of  imports  than  of  ex- 
ports are  handled  at  this  port.  Galveston  is  second  only 
to  New  York  in  the  value  of  its  export  trade,  which  is  largely 
made  up  of  raw  cotton.  Boston  ranks  next  to  New  York 
in  the  value  of  both  imports  and  exports,  with  New  Orleans 
as  a  closer  third.  The  value  of  imports  and  exports  passing 
through  the  port  of  Boston  about  balance  each  other,  while 
New  Orleans  exports  nearly  four  times  as  much  as  it  im- 
ports. From  the  Southern  ports  great  quantities  of  raw 
materials  are  exported,  which  accounts  for  the  excess  of 
exports  over  imports.  The  Pacific  ports  are  steadily  in- 
creasing the  volume  of  commerce  passing  through  them, 
though  they  have  been  greatly  handicapped  since  the  open- 
ing of  the  Panama  Canal  by  the  dearth  of  shipping.  San 
Francisco  is  the  most  important  port  of  the  West  coast. 
Next  come  the  ports  of  Puget  Sound.  Los  Angeles  has 
converted  its  port  at  San  Pedro  from  an  open  roadstead  to 
a  splendid  harbor,  and  the  port  of  San  Diego  has  likewise 
been  greatly  improved  in  recent  years.  As  soon  as  an 
adequate  supply  of  shipping  is  available  for  the  Panama 
Canal  route,  the  trade  of  the  Pacific  coast  is  sure  to  increase 
at  a  wonderful  rate. 

American  Merchant  Marine.— With  ship-building,  fish- 
ing, whaling,  and  commerce  all  profitable  pursuits  in  New 
England  and  the  Middle  Colonies,  the  American  merchant 
marine  achieved  a  position  of  prominence  in  the  early  colo- 
nial period.  As  early  as  July  4,  1631,  a  thirty-ton  bark, 
the  Blessing  of  the  Bay,  was  launched  for  her  owner. 
Governor  John  Winthrop,  of  Massachusetts  Bay.  It  is 
interesting  to  note  that  it  was  for  the  purpose  of  promoting 


I50     FOREIGN   TRADE   OF   UNITED   STATES 

foreign  trade  that  lliis  ship  was  built;  in  the  words  of 
Governor  Winthrop:  *' The  general  fear  of  want  of  foreign 
commodities  set  us  on  work  to  provide  shipping  of  our  own." 
In  1640  Salem  celebrated  the  launching  of  a  300- ton  ship, 
and  Boston  followed  two  years  later  with  one  of  the  same 
tonnage.  By  1676  over  430  vessels  were  owned  in  the 
Massachusetts  Bay  Colony  alone.  These  ships  were  either 
engaged  in  fishing,  whaling,  or  in  trade  with  the  West 
Indies  or  with  European  or  other  ports. 

After  1 7 14  the  schooner,  with  its  two-masted  fore-and- 
aft  rig,  was  the  best-known  type  of  Yankee  keel.  For  over 
a  century  and  a  quarter  it  maintained  the  first  place  in 
overseas  commerce,  to  be  supplanted  finally  by  the  far- 
famed  clipper.  Before  the  Revolution  the  Americans  had 
won  first  place  both  in  ship-building  and  in  the  carry- 
ing trade.  After  independence  was  gained,  the  merchant 
marine  forged  ahead,  despite  the  attacks  by  the  Barbary 
pirates,  and  by  both  the  French  and  English  during  the 
French  Revolution  and  later.  Trade  with  the  most  remote 
countries  was  developed  by  the  hardy  adventurers  who  rep- 
resented the  United  States  on  the  sea,  China,  the  East 
Indies,  India,  the  African  coasts,  the  Pacific  islands — all 
offered  trade  advantages  which  were  promptly  seized. 

The  supremacy  of  the  United  States  was  unquestioned 
until  steamships  came  into  use.  In  1838  two  of  these,  the 
Sirius  and  the  Great  Western,  made  the  trip  from  Liver- 
pool to  New  York.  The  next  year  the  Cunard  Line  was 
founded  by  an  English  company,  and  steamship  traffic 
across  the  Atlantic  was  placed  on  a  permanent  and  profitable 
basis.  The  people  of  the  United  States  were  not  content 
to  see  their  maritime  leadership  disappear  without  making 
an  effort  to  meet  the  new  conditions,  so  the  Collins  Line 
of  steamships  was  established  by  an  American  company, 
with  the  aid  of  Congress,  in  1850.  The  time  required  by 
the  steamers  of  the  Collins  Line  to  make  the  trip  from  New 
York  to  Liverpool  was  several  hours  less  than  that  made  by 


OUR  FOREIGN   COMMERCE  151 

the  Cunarders.  The  rivalry  was  keen,  but  ten  days  was 
the  shortest  time  made. 

The  famed  Yankee  sailing-vessels  which  had  long  borne 
the  Stars  and  Stripes  to  every  port  of  the  world  did  not  pro- 
pose to  bow  before  the  steamship.  Instead,  renewed  efforts 
were  made  to  improve  both  their  speed  and  carr>dng  capac- 
ity. The  famous  Yankee  cHppers,  '^long,  low,  rakish" 
craft,  were  the  result.  The  speed  made  by  these  remark- 
able sailing-vessels  was  for  a  brief  decade  the  marvel  of  the 
world.  At  a  time  when  the  speed  of  the  fastest  ocean 
steamship  did  not  exceed  fourteen  miles  an  hour,  the  Sover- 
eign of  the  Seas,  the  Comet,  the  Flying  Cloud,  the  Sea 
Witch,  the  New  World,  and  their  fleet  sisterhood  were  mak- 
ing as  high  as  fifteen,  sixteen,  and  even  seventeen  miles 
an  hour  throughout  a  twenty-four-hour  period.  It  was 
an  ordinary  occurrence  for  one  of  these  slim,  graceful 
clipper  ships  to  overtake  and  pass  a  transatlantic  steamer 
in  mid-ocean,  and  to  make  the  voyage  in  less  time  than  was 
taken  by  its  unwieldy  rival.  Twelve  days  for  crossing  the 
Atlantic  was  a  record  made  by  more  than  one  famous 
clipper,  proudly  fl>ing  the  American  flag. 

The  Civil  War  put  an  end  to  our  maritime  supremacy. 
This,  however,  might  have  been  regained  had  not  the  press- 
ing need  for  more  railroads  to  keep  pace  with  the  develop- 
ment of  the  West  offered  a  more  enticing  field  for  the  in- 
vestment of  capital,  which  turned  to  the  huge  profits  to 
be  made  in  railroad  building  and  railroad  financing,  leaving 
the  sea-traffic  to  England  and  other  nations.  The  sup- 
planting of  the  wooden  ship  by  that  made  of  iron  and  steel, 
which  became  general  in  England  in  the  early  fifties,  worked 
a  revolution  in  the  ship-building  industry,  and  enabled 
England  to  build  ships  more  cheaply  than  the  United 
States.  This  has  been  a  very  important  factor  in  the  de- 
cline of  our  merchant  marine. 

The  tonnage  of  vessels  engaged  in  foreign  trade  steadily 
declined  from  i860  to  19 13.     From  the  adoption  of  the 


152     FOREIGN   TRADE   OF   UNITED   STATES 

Constitution  to  1840  an  average  of  85.5  per  cent  of  our 
foreign  trade  was  carried  in  American  bottoms.  This 
had  fallen  to  75  per  cent  in  1862,  to  31.9  per  cent  in  1871, 
to  9.3  per  cent  in  1900,  and  to  lo.i  per  cent  in  19 13.  It 
had  long  been  felt  that  measures  should  be  taken  to  re- 
habilitate our  merchant  marine,  but  it  was  not  until  the 
outbreak  of  the  European  War  that  any  adequate  effort 
was  made  to  do  this.  In  August,  19 14,  a  law  was  passed 
by  Congress  admitting  foreign  ships  to  American  registry. 
This  resulted  in  an  immediate  increase  in  American  ship- 
ping. Ship-building  was  likewise  stimulated  by  the  dearth 
of  ocean  carriers  due  to  the  sinking  of  vessels  by  the  bel- 
ligerents. A  strong  sentiment  in  favor  of  making  a  con- 
certed effort  to  regain  our  lost  shipping  supremacy  resulted 
in  the  passage  of  a  law  in  September,  1916,  providing  for 
the  organization  of  a  $50,000,000  corporation  to  build  or 
buy  merchant  ships,  under  the  direction  of  a  national  ship- 
ping board.  The  ships  bought  or  built  were  to  be  avail- 
able for  lease  or  charter  by  private  interests  or  were  to  be 
operated  by  the  government  if  private  interests  failed  to 
take  them. 

Every  shipyard  immediately  began  to  speed  up,  so  that 
some  headway  had  been  made  when  the  United  States 
entered  the  war  the  following  April.  Under  the  pressing 
need  for  ships  to  carry  soldiers,  war  materials,  and  supplies 
overseas  and  to  replace  those  being  sunk  by  the  enemy, 
the  United  States  Shipping  Board  made  every  effort  to 
speed  up  the  production.  Standardized  ships,  by  which 
different  parts  were  made  in  specialized  yards  and  fabri- 
cated or  assembled  in  central  yards,  were  soon  being  turned 
out  at  a  surprising  rate.  In  the  fiscal  year  of  1918, 
1,430,793  gross  tons  of  shipping  were  completed,  an  output 
which  exceeded  the  total  for  the  five-year  period  preceding. 
This,  added  to  the  enemy  vessels  taken  over  and  to  those 
chartered  or  requisitioned  from  neutral  countries,  made  an 
addition  of  some  5,000,000  tons  of  shipping  during  the  period 
we  were  in  the  war. 


OUR  FOREIGN  COMMERCE  153 

In  1 9 14  the  American  tonnage  engaged  in  foreign  trade 
totalled  1,066,288  gross  tons,  while  the  entire  tonnage, 
including  that  engaged  in  the  coastwise  trade  and  in  the 
fisheries,  was  7,928,688  gross  tons.  This  had  increased  to 
about  12,000,000  gross  tons  by  the  end  ofi9i8.  Ini9i4 
the  United  States  had  only  15  vessels  of  1,000  tons  and 
over  engaged  in  overseas  trade.  A  tabulation  made  late 
in  1 919  showed  that  there  were  at  that  date  1,280  Amer- 
ican ships  engaged  in  ocean  traffic,  over  1,000  of  these 
having  been  built  by  the  United  States  Shipping  Board 
in  a  period  of  two  years. 

The  Demand  for  Free  Ports. — With  the  re\'ival  of  the 
American  merchant  marine  has  come  a  demand  for  a  sys- 
tem of  free  ports  in  the  United  States  which  would  over- 
come the  obstacles  to  the  free  course  of  trade  in  foreign 
merchandise  which  our  tariff  laws  have  erected.  A  free 
port  is  a  section  of  water  frontage  with  docks,  warehouses, 
and  other  terminal  facilities,  and  a  restricted  area  of  ad- 
jacent land,  altogether  comprising  a  zone  which  is  free 
from  the  customs  regulations  of  the  nation. 

Into  a  free  port  the  ships  of  the  world  may  enter  and  dis- 
charge their  cargoes  without  the  delay  incident  to  the  cus- 
toms inspection  and  the  payment  of  duties.  In  such  a 
port  warehouses  are  provided  where  cargoes  may  be  stored 
until  there  is  a  demand  for  them  elsewhere.  The  territory 
included  in  the  free-port  zone  may  be  large  enough  to  per- 
mit the  erection  of  factories  where  the  raw  materials  as- 
sembled from  other  countries  may  be  manufactured  and 
shipped  overseas,  without  the  payment  of  duties  on  the 
imported  materials.  While  a  drawback  is  obtainable  un- 
der our  present  system,  against  duty  paid  on  imported  raw 
materials  when  the  goods  manufactured  from  them  are 
exported,  the  forms  to  be  filled  out  and  the  strict  regulations 
necessary  to  prevent  fraud  are  more  or  less  of  a  restraint  on 
manufacturers.  This  privilege  of  manufacturing  from  im- 
ported raw  materials,  without  pa}Tnent  of  duty,  is,  however, 
a  secondary  and  minor  advantage  of  the  free  port. 


154     FOREIGN  TRADE   OF   UNITED   STATES 

The  principal  advantage  of  a  free  port  is  the  stimulus 
it  gives  to  the  trade  in  foreign  merchandise  and  to  the  carry- 
ing trade.  The  free  port  is  a  magnet  that  draws  the  ships 
of  the  world;  first,  because  here  they  may  discharge  their 
cargoes  without  restriction  or  delay;  and,  second,  because 
in  such  a  port  they  are  sure  of  finding  return  cargoes  for 
whatever  port  they  may  be  bound. 

In  the  free  port  cargoes  may  be  broken  up  and  reassem- 
bled; raw  materials  may  be  assorted,  graded,  cleaned,  or 
even  manufactured,  and  then  taken  to  the  best  market, 
free  of  customs  restrictions.  Thus,  free  ports  give  to  a 
tariff  country  the  advantages  of  free  trade  in  so  far  as  the 
re-export  trade  is  concerned.  Goods  moved  from  the  free 
port  inland  are,  of  course,  subject  to  the  customs  laws  of 
the  country. 

A  free  port  not  only  stimulates  the  re-export  trade,  but 
becomes  a  vehicle  through  which  domestic  merchandise 
is  given  a  wider  world  market;  to  free  ports  as  to  all 
merchandise  marts  traders  from  the  four  comers  of 
the  globe  are  drawn,  for  here  they  find  wares  from  every 
land,  including  displays  of  domestic  merchandise.  In  a 
free  port  sales  are  made,  then,  of  domestic  as  well  as  of 
foreign  merchandise.  Buyers  come  primarily  to  contract 
for  wares  from  far  countries,  but  once  in  the  free  port, 
they  commonly  extend  their  interest  to  include  the  products 
of  the  country  of  which  the  free  port  is  the  market-place. 

The  advantages  of  the  free  port  are  thus  set  forth  in  a 
recent  article  in  the  Annals  of  the  American  Academy  of 
Political  and  Social  Science: 

The  great  bulk  of  the  carrying  trade  is  done  by  Great  Britain, 
because  she  is  a  free-trade  country,  and  a  reference  to  the  rise  of 
British  shipping  in  the  years  which  followed  the  repeal  of  the  corn 
laws  shows  a  tremendous  and  immediate  increase  in  her  oversea 
trade  following  the  establishment  of  free  trade.  For  fifty  years 
she  has  been  mistress  of  the  seas  for  the  very  simple  reason  that 
ships  could  come  to  her  ports  from  all  over  the  world;   they  could 


OUR  FOREIGN   COMMERCE  155 

there  discharge  their  cargoes  and  find  other  cargoes  awaiting  them 
without  delay.  Here  there  were  no  obstacles,  obstructions,  or 
tariff  barriers  to  interfere  with  traffic.  All  history  is  unanimous 
in  its  demonstration  that  carrying  trade  will  go  hundreds  of  miles 
to  escape  tariff  barriers.  Protective  tariff's  killed  the  Spanish  trade; 
they  destroyed  the  rich  and  prosperous  cities  of  the  Netherlands. 
They  killed  our  own  foreign  shipping;  for  commerce  hates  tariff 
barriers.  In  recent  years  Germany  has  begun  to  compete  with 
Great  Britain  for  the  carrying  trade  of  the  world.  She  has  been 
able  to  do  this  through  her  free  ports,  which  have  existed  in  Ham- 
burg, Bremen,  and  Lubeck  ever  since  the  Franco-Prussian  War. 
These  concessions  were  insisted  on  by  these  old  free  cities  when  they 
entered  the  Empire.  And  by  imperial  law  there  exists  in  the  har- 
bor of  these  cities  a  large  free  harbor,  into  which  ships  can  come  and 
go  without  the  payment  of  customs  duties  upon  their  cargoes.  By 
this  means  a  free  counter  is  provided,  across  which  goods  can  be 
exchanged  and  transshipped  to  other  destinations.  Or  they  can 
be  placed  in  great  storage  warehouses,  where  they  can  remain  for 
an  indefinite  period  until  cargoes  have  accumulated  for  other  ports. 
If  desired,  they  can  be  shipped  at  any  time  into  the  Empire  on  the 
payment  of  the  customs  duties. 

Ocean  Trade  Routes. — Only  about  one-tenth  of  our  for- 
eign trade  is  transported  by  land;  most  of  it  is  overseas 
commerce.  Hence,  a  general  idea  of  the  great  ocean  routes 
by  which  our  trade  is  carried  is  important.  The  trade 
route  that  is  by  far  the  most  important  to  America  is  the 
North  Atlantic  route.  While  it  would  seem  that  there 
are  many  routes  across  the  North  Atlantic,  the  fact  is  that 
the  lines  from  and  to  the  various  ports  all  practically  con- 
verge in  mid-ocean,  so  that  there  is  one  route  with  many 
branches  at  either  end.  On  the  western  end  are  the  ports 
of  the  St.  Lawrence,  of  the  North  Atlantic,  of  the  Gulf  of 
Mexico,  and  of  the  Caribbean  Sea.  The  most  important 
of  these  are,  following  the  order  from  north  to  south, 
Montreal,  Quebec,  Halifax,  Boston,  New  York,  Phila- 
delphia, Baltimore,  Havana,  Pensacola,  Mobile,  New 
Orleans,  Galveston,  Vera  Cruz,  and  Colon.  On  the  eastern 
or  European  end  of  the  North  Atlantic  route  the  principal 


156     FOREIGN   TRADE   OF   UNITED   STATES 

f)orts  are  Liverpool,  Glasgow,  Belfast,  London,  Havre, 
Antwerp,  Rotterdam,  Amsterdam,  Bremen,  Hamburg, 
Copenhagen,  and  Christiania,  Direct  lines  of  this  route 
also  penetrate  as  far  as  Stockholm,  Riga,  and  Petrograd. 
Over  half  of  the  tonnage  of  international  trade  is  carried 
over  this  route. 

A  route  of  the  greatest  importance  is  the  one  that  takes 
up  the  threads  of  the  North  Atlantic  route  at  the  European 
ports  and  extends  them  through  the  Mediterranean  Sea, 
the  Suez  Canal,  and  the  Red  Sea  to  India  and  southwestern 
Asia. 

Another  route  connecting  the  North  Atlantic  ports  of 
America  and  of  Europe  with  the  East  Indies  and  the  Orient, 
on  the  one  hand,  and  with  Australia  and  New  Zealand,  on 
the  other,  is  the  one  that  passes  south  of  Africa  and  thence 
to  the  east.  This  route  is  longer  than  the  one  to  the 
Orient  by  w^ay  of  the  Suez  Canal,  but  it  is  used  by  freight- 
ships  to  save  canal  tolls.  Fast  mail  and  passenger  steamers 
do  not  follow  this  route,  but  it  is  an  important  one  for 
freight-steamers  and  sailing-vessels.  Most  of  the  vessels 
following  this  route  call  at  Cape  Town,  the  great  trade 
centre  of  South  Africa. 

A  route  that  will  lose  its  importance  with  the  develop- 
ment of  the  Panama  Canal  trade  is  the  one  connecting  the 
Atlantic  ports  of  the  United  States  and  Europe  witli  the 
west  coast  of  South  America.  Some  of  the  lines  of  this 
route  extend  only  to  the  eastern  ports  of  South  America; 
others  carry  vessels  around  the  continent  and  up  the  west 
coast. 

There  are  two  main-travelled  routes  across  the  North 
Pacific.  The  first  connects  the  ports  of  the  Pacific — Van- 
couver, Seattle,  Tacoma,  Portland,  San  Francisco,  Los 
Angeles,  and  San  Diego — with  Yokohama,  Shanghai, 
Hong  Kong,  and  Manila.  The  most  direct  line  of  this 
route  is  the  one  from  San  Francisco  to  Yokohama  which 
follows  the  great  circle  connecting  these  two  points,  pass- 
ing nearly  1,000  miles  north  of  Honolulu. 


OUR  FOREIGN  COMMERCE  157 

The  second  North  Pacific  route  is  the  one  connecting  the 
Pacific  ports  of  North  America  with  those  of  New  Zealand 
and  AustraHa.  Vessels  of  this  route  either  call  at  Honolulu 
and  Samoa  or  dip  down  to  Tahiti  and  then  proceed  to  New 
Zealand  or  Australia. 

The  Panama  Canal  makes  the  circumnavigation  of  the 
globe  a  simple  matter.  Ships  leaving  European  ports  for 
the  Orient  by  way  of  the  Suez  Canal  may  continue  their 
journey  to  the  Pacific  ports  of  North  America,  where  they 
can  take  on  new  cargoes,  pass  through  the  Canal,  and  thence 
across  the  Atlantic  to  the  home  ports.  Trade  between  the 
Atlantic  and  the  Pacific  ports  of  the  Americas  is  that  most 
directly  affected.  Hitherto,  this  had  to  be  carried  around 
Cape  Horn  or  else  transshipped  at  Panama.  Likewise, 
the  trade  between  the  Atlantic  ports  of  the  Americas  and 
the  Orient  or  Australasia  is  greatly  facilitated  by  the  Canal. 
The  Canal  shortens  the  distance  from  New  York  to  San 
Francisco  about  7,800  nautical  miles,  to  Honolulu  about 
6,600  miles,  to  Valparaiso  over  3,700  miles,  to  Yokohama 
nearly  3,800  miles,  to  Shanghai  about  1,800  miles.  From 
San  Francisco  to  Liverpool  the  distance  is  shortened  5,600 
miles,  to  New  Orleans  8,800  miles,  and  from  New  Orleans 
to  Yokohama  5,700  miles.  Our  trade  with  the  Orient, 
with  Australasia,  and  wdth  South  America  is  bound  to  be 
stimulated  as  the  trade  routes  of  the  world  are  gradually 
altered  so  as  to  make  use  of  this  great  waterway. 

Aircraft  in  International  Trade. — The  tremendous  ad- 
vance in  aviation  during  the  war  has  made  the  question  of 
the  use  of  aircraft  for  commercial  purposes  no  longer  a  theo- 
retical one.  The  transportation  of  mail  and  lighter  freight 
by  airplanes  has  proved  entirely  practicable,  and  the  ex- 
tension of  this  use  to  overseas  commerce  has  begun.  In 
this  development  Great  Britain  has  taken  the  initiative 
by  organizing  corporations  for  the  purpose  of  building 
airships  for  use  in  foreign  trade.  Strategic  points  for  air- 
craft stations  have  been  secured  in  various  countries  and 
aircraft  routes  selected  and  mapped  out. 


158     FOREIGN   TRADE   OF   UNITED   STATES 

The  most  obvious  use  of  the  ships  of  the  air  in  inter- 
national trade  is  as  feeders  for  the  ships  of  the  sea.  Rush 
merchandise  that  is  not  too  heavy  can  be  brought  to  the 
port  in  vessels  and  loaded  at  once  into  great  dirigibles 
and  transported  inland  in  a  few  days  where  it  would  take 
weeks  for  delivery  by  the  old  methods.  In  South  American 
and  other  countries  where  transportation  facilities  inland 
are  poor,  the  advantage  of  aerial  navigation  is  most  marked. 

Lighter  and  smaller  airplanes  are  of  use  as  mail  and  ex- 
press carriers,  especially  for  the  rapid  delivery  of  blue- 
prints, plans,  and  specifications  for  engineering  works,  and 
for  other  important  documents  for  which  rapid  delivery 
is  highly  desirable. 

BIBLIOGRAPHY 

Bates,  William  B.     The  American  Marine.     New  York,  1902. 
Chatterton,  E.  Keble.     Ships  mid  Ways  of  Other  Days.    Lon- 
don, 1913. 
Clark,  A.  H.     The  Clipper  Ship  Era,  1 843-1 869.     New  York, 

1910. 
Dunn,  Russell  L.     The  Efect  of  the  Panama  Canal  on  Sea  Traffic. 

63d   Congress,  2d  session.     Senate  document  no.  540,  serial 

no.  6595.     Washington,  1914. 
Fletcher,  R.  A.     Steamships ;    The  Story  of  Their  Development 

to  the  Present  Day.     London,  19 10. 
Hill,  Charles  S.     History  oj  American  Shipping ;   Its  Prestige, 

Decline y  and  Prospects.     New  York,  1883. 
Hough,  Olney  B.     Ocean  Traffic  and  Trade.     Chicago,  19 14. 
Howe,  Frederic  C.     The  Free  Port  an  Agency  for  the  Development 

of  American  Commerce.     Annals  of  the  American  Academy  of 

Pohtical  and  Social  Sciences,  vol.  59,  part  3. 
HuTCfflNSON,    Lincoln.     The    Panama    Canal   and    International 

Trade  Competition.     New  York,  191 5. 
Johnson,  Emory  R.    Elements  of  Transportation.    New  York,  1916. 
Johnson,    Emory   R.     Ocean  and  Inland   Water    Transportation. 

New  York,  1906. 
Johnson,   Emory  R.     The  Panama  Canal  and  Commerce.     New 

York,  1916. 
Johnson,  E.  R.,  and  Huebner,  G.  G.    Shipping  in  Its  Relation  to 

Our  Foreign  Trade.     New  York,  1916. 


OUR   FOREIGN   COMMERCE  159 

Johnson,  E.  R.,  and  Huebner,  G.  G.  Principles  of  Ocean  Trans- 
portation.    New  York,  1918. 

Keys,  C.  M.  Changing  the  Transcontinental  Trade  Routes.  World's 
Work,  vol.  24,  pp.  403-14.     August,  191 2. 

McElwee,  Roy  S.  Ports  and  Terminal  Facilities.  New  York, 
1918. 

Mahan,  a.  T.     From  Sail  to  Steam.     New  York,  1907. 

Merchants'  Association  of  New  York.  Fuiution  and  Utility 
of  Free  Ports.     New  York,  191 8. 

Paine,  R.  D.     The  Ships  and  Sailors  of  Old  Salem.     Chicago,  191 2. 

Parker,  Walter.  Inland  Waaler  Transportation — a  Factor  in 
Foreign  Trade  Development.  Fifth  National  Foreign  Trade 
Convention.     Report,  1918.  pp.  345~354- 

Smith,  Joseph  Russell.     The  Ocean  Carrier.     New  York,  1908. 

Smith,  Joseph  Russell.  The  Organization  of  Ocean  Commerce. 
Philadelphia,  1905. 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Trans- 
Pacific  Shipping,  1916.     (Miscellaneous  series  no.  44.) 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Government 
Aid  to  MerchafU  Shipping.    1916.  (Special  agents  series  no.  119.) 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Ports  of  the 
United  States.     1916.     (Miscellaneous  series  no.  33.) 

U.  S.  Tariff  Commission.  Free  Zones  in  Ports  of  the  United,  States. 
1918. 


CHAPTER  XIII 
OCEAN  FREIGHT 

Importance  of  Ocean  Transportation. — Since  overseas 
commerce,  which  forms  by  far  the  larger  part  of  interna- 
tional trade,  is  dependent  upon  ocean  transportation,  the 
importance  of  this  subject  is  apparent.  Fully  nine-tenths 
of  the  foreign  commerce  of  the  United  States  is  overseas 
commerce;  all  of  the  foreign  trade  of  the  United  Kingdom 
is  sea-borne,  and  the  greater  part  of  that  of  all  other  na- 
tions taking  an  active  part  in  international  trade  is  trans- 
ported over  the  sea.  The  ocean  has  been  characterized 
as  the  great  international  highway;  it  is  the  common  prop- 
erty of  all  the  nations,  over  which  the  ships  of  every  coun- 
try go  and  come  on  a  basis  of  equality. 

T3rpes  of  Ocean  Traffic. — There  are  two  distinct  types  of 
ocean  trafl&c,  known  as  Hne  and  charter  traffic.  The  first 
is  primarily  intended  for  passenger,  mail,  and  express 
service,  though  great  quantities  of  freight  are  also  carried. 
The  ships  used  on  the  lines  are  steamships;  they  sail  on 
definite  routes  according  to  fixed  schedules,  depending 
upon  regularity  and  speed  for  their  support.  They  carry 
all  freight  except  that  shipped  in  cargo  lots  on  chartered 
vessels. 

Charter  traffic  is  carried  by  ships  operated  as  single 
units,  owned  either  by  corporations  or  by  individuals. 
They  are  called  tramps  because  they  are  wanderers  con- 
stantly moving  from  one  place  to  another,  regardless  of 
previous  routes  or  any  other  consideration  but  the  call  of 
the  moment.  A  tramp  steamer  may  be  loading  lumber  in 
Seattle  in  one  month,  may  be  leaving  Liverpool  with  a 

1 60 


OCEAN  FREIGHT  i6i 

cargo  of  coal  a  few  weeks  later,  may  next  appear  in  Buenos 
Aires,  where  the  coal  is  discharged  and  wheat  secured  to 
be  taken  to  Hamburg,  or  Liverpool,  or  Bombay.  Wherever 
traffic  offers  the  tramp  steamer  goes,  provided  the  chances 
of  securing  a  return  cargo  at  a  fair  rate  seem  favorable. 
The  tramp  service  includes  all  of  the  sailing-vessels,  but 
it  is  not  confined  to  these.  The  steamships  engaged  in  this 
service  are  generally  those  of  great  carrying  capacity 
and  comparatively  slow  speed.  Tramp  ships  may  be  char- 
tered for  a  certain  voyage,  for  a  stipulated  length  of  time, 
or  for  the  carrying  of  a  cargo  at  an  agreed  price  per  ton. 
They  are  available  only  for  the  large  shipper  who  can  make 
shipments  in  cargo  lots. 

The  rates  for  such  shipments  are  lower  than  those  obtain- 
able from  steamship-lines,  and  the  service,  unless  great 
speed  is  required,  is  satisfactory.  Such  raw  materials  as 
grain,  cotton,  coal,  iron  ore,  lumber,  sugar,  and  petroleum, 
and  such  heavy  manufactured  articles  as  steel  rails,  loco- 
motives, and  hea\y  machinery  are  carried  by  tramp  ships, 
which  may  be  chartered  to  carry  a  cargo  to  any  port  from 
any  other  port.  By  far  the  larger  part  of  ocean  freight  is 
handled  by  charter  traffic.  Professor  J.  Russell  Smith,  in 
his  comprehensive  work  entitled  Industrial  and  Commercial 
Geography^  thus  sums  up  the  service  afforded  by  regular 
steamship-lines  and  that  given  by  tramp  ships: 

These  two  types  of  ocean  service  work  together  like  freight- 
trains  and  express-trains.  The  tramps  handle  the  trade  of  vast 
quantity;  the  liners  handle  the  trade  of  high  value  and  the  ship- 
ments of  small  size  and  great  number.  The  lines,  therefore,  serve 
the  greater  number  of  shippers.  They  serve  the  multitude  who  can- 
not fill  a  ship  with  one  consignment,  and  among  manufacturers 
there  must  be  thousands  of  small  shipments  of  finished  goods  to 
one  that  requires  a  tramp  to  handle  it.  The  manufacturing  state 
may  depend  upon  the  thousand  ships  that  bring  food  and  materials, 
but  there  is  an  equal  dependence  upon  the  300  big  liners  that  carry 
to  market  with  greater  speed  the  myriad  small  consignments  of 
manufactured    exports.     Conversely,    the    raw-material-producing 


i62     FOREIGN   TRADE   OF   UNITED   STATES 

country  like  Argentina  depends  largely  upon  tramps  to  take  its 
exports  and  upon  liners  to  bring  its  imports  of  valuable  manu- 
factured goods. 

Ocean  Freight  Rates. — Water  transportation  is  cheaper 
than  that  by  land.  Only  the  carrier  has  to  be  supplied 
by  man;  the  highway  is  supplied  by  nature.  Hence,  there 
is  no  expense  for  road  or  road-bed,  none  for  terminal  facili- 
ties, none  for  other  equipment  than  the  vessel.  Harbor 
improvements  are  made  and  terminal  facilities  provided 
at  each  port  by  the  State  or  municipality.  While  large 
steamship  companies  often  build  their  own  wharfs  and 
docks  in  order  to  facilitate  the  loading  and  unloading  of 
their  vessels,  this  is  merely  a  matter  of  choice  and  not  of 
necessity.  In  all  of  these  respects  the  ocean  carrier  has 
an  advantage  over  the  land  carrier,  the  railway.  Less  capi- 
tal is  thus  required  for  ocean  than  for  land  transportation. 
These  conditions  all  make  for  free  competition  among 
ocean  carriers,  with  the  consequent  reduction  of  the  charges 
made  for  ocean  transportation  of  freight. 

This  free  competition  not  only  tends  to  keep  freight 
rates  low  in  normal  times,  but  also  causes  those  rates  to 
fluctuate  from  time  to  time,  so  that  it  is  difficult  to  deter- 
mine long  in  advance  what  the  freight  on  a  given  ship- 
ment ^ill  cost.  General  quotations  are  seldom  given  by 
steamship  companies,  as  the  rates  are  so  subject  to  change, 
being  materially  affected  by  seasonal  and  other  conditions. 
But  exact  quotations  are  given  for  a  specific  shipment  of 
a  certain  kind  and  quantity  of  goods  at  a  fixed  date  between 
two  ports.  Since  two  shipments  of  the  same  size,  weight, 
quality,  and  character,  made  at  different  dates  between  the 
same  two  points,  may  vary  considerably  in  freight  charges, 
great  care  must  be  exercised  in  figuring  this  item  before 
making  c.  i.  f.  price  quotations,  which  include  the  cost, 
insurance,  and  freight. 

The  bulk  of  manufactured  articles  are  shipped  by  line 
traffic  in  comparatively  small  quantities  and  not  in  full 


OCEAN  FREIGHT  163 

cargo  lots  by  charter  traffic.  Ocean  carriers  reserve  the 
right  to  compute  freight  either  by  weight  or  measurement, 
''ship's  option."  The  weight  ton  is  the  long  ton  of  2,240 
l^ounds,  though  the  metric  ton  of  2,204.62  is  generally  used 
in  computing  freight  shipped  from  countries  using  the  metric 
system  of  weights  and  measurements.  The  weight  ton  is 
used  in  calculating  freight  charges  on  heavy  articles,  such 
as  grain,  coal,  iron  ore,  steel  rails,  and  heavy  machinery. 
The  measurement  ton  is  40  cubic  feet.  It  is  used  in  com- 
puting ocean  freight  on  bulky  articles  that  run  Hght,  that 
is,  that  weigh  less  than  56  pounds  to  the  cubic  foot  or 
than  2,240  pounds  to  40  cubic  feet.  Most  manufactured 
articles  are,  therefore,  carried  by  the  measurement  or  cubic 
ton.  Where  several  tons  are  charged  for  on  the  basis  of 
the  measurement  ton,  the  weight  of  the  shipment  may  be 
actually  less  than  a  ton.  An  article  weighing  2,240  pounds 
or  less  but  measuring  80  cubic  feet  is  charged  as  two  tons. 
It  is  customary  to  make  an  extra  charge  on  packages  of  ex- 
tra size  or  weight,  or  of  unwieldy  shape.  Sometimes  the 
charge  is  reckoned  neither  by  weight  nor  by  volume,  but 
by  the  piece  or  dozen.  Thus,  quotations  are  sometimes 
given  by  the  barrel  or  case  or  package.  Since  there  is  no 
uniformity  in  the  methods  of  determining  freight  rates, 
this  item  must  be  ascertained  by  obtaining  direct  quota- 
tions from  the  company  through  which  a  shipment  is  to  be 
made. 

As  a  general  rule  all  but  full  cargo  shipments  must  be 
sent  as  general  cargo  by  regular  Hne  steamers,  but  there 
is  an  exception  in  the  case  of  berth  cargo,  which  consists 
of  partial  cargo  taken  at  times  by  tramp  ships  and  liners 
to  complete  the  lading.  The  conditions  under  which  such 
parrial  cargoes  are  shipped  are  thus  described  by  Professor 
Emory  R.  Johnson  in  his  work  entitled  Ocean  and  Inland 
Water  Transportation: 

It  frequently  happens  that  both  chartered  and  Hne  vessels  may 
seek  shipments  of  small  quantities  to  complete  the  lading  of  the 


i64     FOREIGN  TRADE  OF   UNITED   STATES 

ships,  or  shipments  of  some  special  kind  of  a  commodity  needed  as 
a  complement  to  the  main  cargo.  A  vessel  loading  with  cotton 
will  gladly  take  a  part  cargo  of  steel  rails  or  pig  iron  to  place  in 
the  bottom  of  the  vessel;  and  vice  versa,  a  ship  whose  chief  cargo 
is  heavy  freight,  will  welcome  shipments  of  a  light  and  bulky  char- 
acter that  will  take  up  the  unoccupied  space  with  profitable  cargo. 
This  search  for  freight  to  complete  or  complement  the  cargo  of  a 
chartered  or  line  vessel  introduces  bargaining  methods  into  the 
making  of  rates. 

Berth  cargo  may  thus  consist  of  two  or  three  commodities 
of  varying  weight  or  bulk,  or,  in  some  cases,  of  even  a  large 
variety  of  commodities  secured  in  the  form  of  small  ship- 
ments, in  no  wise  differing  from  the  shipments  usually 
made  over  line  steamers.  When  the  opportunity  is  offered 
to  make  small  shipments  in  this  way,  shippers  are  quick 
enough  to  take  advantage  of  it,  for  the  rates  thus  secured 
are  unusually  low. 

Large  shippers  who  have  a  somewhat  regular  volume  of 
exports  to  ship  each  month  find  it  to  their  interest  to  con- 
tract with  steamship-lines  for  the  transportation  of  a 
stipulated  amount  of  ocean  freight  each  month  or  each  sea- 
son. Rates  secured  under  such  contracts  are  usually  lower 
than  those  obtained  otherwise,  though  the  fluctuations  in 
rates  are  so  great  at  times  that  it  is  impossible  to  deter- 
mine this  point  in  advance.  The  shipper  making  such  a 
contract  is  certain  of  having  the  shipping  facilities  needed, 
and,  knowing  in  advance  what  his  freight  will  cost,  he  is 
enabled  to  quote  c.  i.  f,  prices  without  incurring  the  risk 
of  ha^/ing  the  freight  cost  double  or  treble  between  the  time 
he  makes  the  quotation  and  the  date  of  shipment. 

Ocean  freight  is  usually  prepaid  by  the  shipper,  and  this 
charge  is  specifically  added  to  the  bill  rendered  the  con- 
signee, and  is  included  in  the  draft  drawn  against  the  ship- 
ment. In  case  the  goods  have  been  sold  under  a  c.  i.  f. 
quotation,  the  freight  does  not  appear  on  the  bill,  as  it  is 
included  in  the  price.  Primage  is  sometimes  spoken  of 
in  connection  with  ocean  freight.     It  is  a  charge  that  still 


OCEAN  FREIGHT  165 

appears  on  ocean  bills  of  lading,  a  survival  of  the  days  when 
the  captain  and  the  crew  were  given  a  sum  of  money  in 
appreciation  of  the  care  they  exercised  in  handling  the 
shipment. 

Parcels  Receipts. — Steamship  companies  require  a  mini- 
mum payment  for  the  issuance  of  a  bill  of  lading.  The 
disadvantage  of  making  a  small  shipment,  the  freight  on 
which  is  the  same  as  on  one  several  times  as  large,  is  evi- 
dent. When  a  small  shipment  is  imperative,  it  can  be 
handled  best  through  a  freight  forwarding  agent  or  by  the 
use  of  a  parcels  receipt.  A  parcels  receipt  is  a  substitute 
bill  of  lading,  designed  to  meet  the  requirements  of  small 
shippers.  Goods  thus  shipped  are  not  subject  to  trans- 
shipment, so  their  use  is  restricted  to  direct  ports  of  call 
of  the  steamship  in  which  the  parcel  is  shipped.  The 
weight,  size,  and  value  of  shipments  for  which  parcels 
receipts  are  issued  vary  with  the  different  steamship  com- 
panies. 

Ocean  Freight-Agents. — Steamship  companies  maintain 
freight-agents  at  their  ports  of  call  and  also  in  large  in- 
land cities  whose  function  it  is  to  secure  freight  and  to  make 
arrangements  for  the  shipments  booked  over  their  lines. 
Tramp  steamers  do  not  have  such  agents,  but  their  carry- 
ing trade  is  greatly  facilitated  by  the  emplo>Tnent  of  ship- 
brokers,  who  practically  direct  the  operation  of  charter 
traffic.  These  brokers  maintain  offices  at  the  leading 
world  ports  and  by  an  extensive  use  of  the  telegraph,  the 
cable,  and  wireless  telegraphy  keep  in  constant  touch 
\dth  the  movements  of  all  charter  vessels  on  their  list  and 
also  mth  the  export  and  import  needs  of  every  nation  and 
of  every  district.  They  work  on  a  commission  basis,  and 
are  indefatigable  in  their  efforts  to  find  ships  for  commodi- 
ties to  be  carried  from  one  port  to  another,  and  to  find 
cargoes  for  tramp  vessels  in  every  part  of  the  world. 

Railroads  ha\dng  terminals  at  the  seaboard  maintain 
foreign  freight-agents  who  keep  freight  or  station  agents 


1 66     FOREIGN  TRADE   OF   UNITED   STATES 

at  inland  points  informed  of  changes  in  foreign  freight 
rates.  These  agents,  as  well  as  others  representing  fast 
freight  lines,  are  experts  in  every  detail  of  making  foreign 
shipments.  They  are  able  to  quote  through  rates  from 
interior  points  to  overseas  destination  on  specific  shipments 
for  definite  dates;  they  reserve  cargo  space  for  shipments; 
supervise  the  through  movement  of  export  freight;  direct 
its  transfer  at  the  port  of  shipment,  and  attend  to  the 
final  details  of  ocean  shipments.  Freight  thus  handled  is 
on  through  bills  of  lading,  in  which  the  rate  paid  includes 
all  the  expenses  incident  to  the  shipment. 

In  the  Department  of  Agriculture  bulletin  entitled 
Methods  and  Routes  for  Exporting  Farm  Products  the 
following  information  on  export  shipments  is  given: 

Merchandise  shipped  by  the  all-rail  eastern  route  generally  passes 
over  several  railroads  before  reaching  its  final  destination,  so  that 
to  simplify  the  methods  of  handling  such  through  freight,  as  well 
as  to  insure  its  expedition,  companies  known  as  fast  freight  lines 
have  been  organized.  These  companies  may  or  may  not  own 
rolling-stock,  but  their  main  object  is  to  facilitate  the  rapid  transit 
of  tonnage  over  various  lines  of  road  in  accordance  with  contracts 
entered  into  with  the  latter,  and  to  generally  supervise  the  through 
movement  of  all  such  freight,  although  to  all  intents  and  purposes 
the  trafiic  is  under  the  control  of  the  Hne  over  whose  rails  it  is 
travelling. 

In  the  movement  of  export  freight,  these  fast  freight  lines  are 
extensively  employed,  as  prompt  delivery  is  always  essential.  In 
many  instances  railroads  having  terminals  at  seaboard  cities  em- 
ploy a  foreign  freight-agent,  whose  duty  it  is  to  communicate  the 
ocean  rates  at  least  once  a  week  to  interior  line  agents,  and  should 
changes  in  the  rates  occur  during  the  week  the  line  agents  are  noti- 
fied by  telegram.  Any  one  wishing  to  export  merchandise  from 
interior  points  can  receive  all  necessary  information  as  to  rates, 
routes,  bills  of  lading,  etc.,  by  applying  to  the  local  fast  freight- 
agent,  who  is  generally  represented  by  the  freight  or  station  agent 
of  the  railroad.  .  .  .  The  rates  submitted  by  these  line  agents 
will  always  be  through  rates  from  the  place  at  which  the  fast 
freight  line  takes  care  of  the  freight  to  its  foreign  destination. 
The  shipper  has  therefore  nothing  to  do  with  the  ocean  rate,  as  it  is 


OCEAN  FREIGHT  167 

of  course  included  in  the  through  rate  quoted  by  the  agent.  In  the 
event  of  a  shipper  living  at  an  interior  point,  from  which  a  local 
haul  has  to  be  made  to  the  place  at  which  the  merchandise  is  con- 
signed to  the  fast  freight  Hne,  the  local  rate  covering  such  haul 
combined  with  the  through  rate  given  by  the  agent  will  be  the 
rate  to  destination. 

C.  I.  F.  Quotations. — Closely  allied  with  the  subject  of 
ocean  freight  is  that  of  quoting  prices  to  foreign  customers 
which  cover  not  only  the  cost  of  the  goods  but  also  the  cost 
of  the  freight  to  the  port  of  destination.  Such  a  quotation 
is  referred  to  as  a  c.  f.  or  c.  a.  f.  quotation,  meaning  cost 
and  freight.  A  c.  i.  f.  quotation  is  one  in  which  the  cost 
of  the  goods,  the  marine  insurance,  and  the  freight  are  in- 
cluded. Such  a  quotation  shows  the  exact  cost  of  the  goods 
on  board  ship  at  the  port  of  destination.  It  does  not  in- 
clude the  cost  of  landing  or  lightering  or  customs  charges 
at  the  port  of  destination. 

Such  charges  are  usually  assumed  by  the  consignee, 
whose  familiarity  with  the  customs  of  his  own  port  enables 
him  to  determine  the  approx'mate  expense  incident  to  the 
landing  of  a  foreign  shipment  and  the  duty  that  will  be 
assessed.  The  cost  of  consular  invoices,  foreign  exchange, 
and  other  incidental  expenses  are  not  usually  included  in 
c.  i.  f.  quotations,  though  these  must  be  included  if  it  is 
definitely  agreed  that  the  price  quoted  covers  the  cost  and 
all  expenses  up  to  the  arrival  of  the  goods  at  the  port  of 
destination.  Foreign  buyers  are  often  deterred  from  plac- 
ing an  order  in  the  United  States  because  of  their  lack  of 
familiarity  with  the  cost  of  inland  freight  or  their  misgiv- 
ings over  possible  charges  that  may  be  made  for  packing, 
drayage,  or  other  incidentals.  The  quotation  of  a  price 
covering  the  cost  of  the  goods  in  the  foreign  port  is  often 
the  deciding  factor  in  the  placing  of  an  order.  Conse- 
quently, the  making  of  c.  i.  f.  quotations  is  becoming  more 
and  more  common  in  our  export  trade. 

The  making  of  a  c.  i.  f.  quotation  requires  care  and  ex- 


i68    FOREIGN  TRADE   OF  UNITED   STATES 

actness.  The  quotation  must  be  carefully  calculated  in 
order  to  avoid  loss  due  to  freight  or  insurance  being  higher 
than  was  estimated.  It  is  customary  to  overestimate  the 
cost  of  cartage  and  of  both  freight  and  insurance  rather 
than  to  err  in  the  other  direction.  It  is  a  simple  matter 
to  lower  a  quotation,  but  is  considered  a  poor  business 
policy  to  raise  one  that  has  been  submitted.  The  method 
of  figuring  a  c.  i.  f.  quotation  is  simple.  The  total  expenses 
incident  to  the  shipment  are  determined  by  adding  together 
the  charges  for  packing,  cartage,  inland  freight,  insurance, 
ocean  freight,  and  any  other  items  to  be  included,  such  as 
the  cost  of  the  consular  invoice  and  of  the  exchange;  this 
total  being  ascertained,  the  percentage  it  bears  to  the  total 
cost  of  the  goods  is  figured  and  this  percentage  added  to 
the  price  of  each  article.  For  example,  if  the  shipment 
consists  of  14  articles  priced  at  $100  each,  making  a  total 
of  $1,400,  and  the  cartage  is  $6,  the  inland  freight  $12,  the 
marine  insurance  $22,  and  the  ocean  freight  and  other 
expenses  $44,  then  a  total  of  $84  is  to  be  added  to  the  price 
of  the  goods.  This  $84  is  6  per  cent  of  that  price,  $1,400. 
Consequently,  6  per  cent  is  to  be  added  to  the  regular 
price  of  each  article.  Hence,  the  c.  i.  f.  quotation  of  each 
article  in  the  shipment  will  be  $106  instead  of  $100,  and 
the  14  articles  will  be  quoted  at  $1,484  instead  of  $1,400. 

There  are  other  quotations  that  may  be  considered  here. 
F.  O.  B.  (Free  on  Board)  means  that  the  goods  are  to  be 
delivered  on  board  the  steamer  at  the  port  of  shipment  at 
the  expense  of  the  seller.  F.  A.  S.  (Free  at  Side)  means  that 
the  shipper  is  to  deliver  the  goods  alongside  the  steamer  or 
lighter  in  the  port  of  shipment  in  proper  shipping  condition. 
F.  F.  A.  (Free  from  Alongside)  means  that  the  shipper  pays 
the  lighterage  charges  in  the  port  of  destination  from  the 
steamer.  In  each  case  all  the  subsequent  charges  are  for 
the  account  of  the  customer. 

Packing  Overseas  Shipments.— The  packing  of  foreign 
shipments  is  an  important  factor  in  exporting.     The  im- 


OCEAN  FREIGHT  169 

portance  of  exercising  the  greatest  care  in  every  detail  of 
packing  and  shipping  has  become  generally  recognized  by 
exporters  of  the  United  States,  who  have  been  severely 
criticised  in  the  past  for  carelessness  or  failure  to  follow 
instructions  to  the  letter  in  preparing  their  goods  for  ship- 
ment. It  has  been  said  that  American  packing  methods 
are  inferior  to  those  of  England  and  Germany,  and  that 
this  has  been  the  cause  of  losing  much  profitable  trade  in 
many  markets.  The  extreme  care  now  given  to  this  de- 
tail in  all  exporting  houses  has  put  an  end  to  most  of  the 
complaints  and  criticism  on  this  score. 

In  packing  a  foreign  order,  there  are  two  distinct  con- 
siderations: first,  the  protection  required  during  transit, 
and,  second,  the  customs  regulations  of  the  foreign  coun- 
try to  which  they  are  consigned. 

The  final  place  of  destination  of  the  goods  determines  the 
methods  of  transportation  to  be  employed  from  the  be- 
ginning to  the  end  of  the  journey.  In  many  cases,  the 
ocean  trip  is  only  one  stage;  numerous  transshipments, 
inland  railroads,  pack-trains,  caravans,  small  river-boats, 
and  even  canoes  may  all  be  resorted  to  before  the  goods 
reach  the  customer.  Hence,  goods  that  leave  the  factory 
in  excellent  condition,  apparently  so  stoutly  packed  and 
carefully  protected  as  to  be  safeguarded  against  the  rough- 
est handling,  not  infrequently  reach  their  destination  in  a 
badly  damaged  condition. 

The  treatment  that  export  shipments  are  liable  to  be 
subjected  to  is  best  illustrated  by  a  concrete  example.  Let 
us  follow  the  shipment  of  a  number  of  cases  of  household 
utensils  to  an  inland  point  in  Chile.  The  goods  are  manu- 
factured in  Pennsylvania,  shipped  to  New  York  by  rail, 
and  there  dumped  in  the  freight-sheds,  to  be  later  carted 
to  the  steamship  wharf.  Here  they  are  loaded  on  trucks 
and  taken  to  the  side  of  the  ship,  where  a  rope  sling  is 
spread  out  to  receive  them.  Into  this  they  are  heaved  by 
sweating  longshoremen,  who  are  driven  to  the  last  ounce  of 


lyo     FOREIGN   IRADE   OF   UNITED   STATES 

energy  they  possess  by  the  contractor  who  has  the  loading 
of  the  ship  in  hand.     When  this  sling  or  rope  net  is  filled, 
a  great  steel  hook  is  coupled  to  it  and  it  is  hauled  up  over 
the  ship's  side.     Often,  through  the  miscalculation  of  the 
engineer  in  charge  of  the  donkey-engine  that  operates  this 
crane,  the  swaying  mass,  weighing  several  tons,  crashes 
against  the  steel  side  of  the  ship,  or,  if  it  clears  this,  it  may 
be  jammed  against  the  steel-shod  hatchways  of  the  hold, 
and  land  with  a  thud  on  the  lower  deck,  where  the  pack- 
ages are  again  man-handled  by  the  longshoremen  and  stored 
away  in  the  ship's  compartments  in  record  time.     Many  a 
package  freely  marked  with  that  most  useless  of  legends, 
"Handle  with  care,"  is  hurled  into  some  sharp-edged  corner, 
where  it  is  smashed  like  an  egg-shell  and  its  contents  lit- 
tered over  the  floor,  to  the  joy  of  the  grinning  freight- 
handlers.    Avoiding   such    a   mishap,    the   packages    are 
stored  in  the  hold  and  start  on  their  long  voyage  through 
heaving  seas  half  round  the  world.     If  the  voyage  is  a 
rough  one  and  the  ship  encounters  heavy  seas  or  one  of 
those  lashing  hurricanes  that  toss  her  about  like  a  cockle- 
shell, causing  part  of  her  cargo  to  shift,  the  cases  that  are 
not  a  product  of  the  packers^  art,  inner  stayed  and  outer 
strapped  and  cleated,  will  be  a  sorry  sight,  and  the  house 
shipping  them  will  spend  months  in  a  vain  endeavor  to 
convince   the   consignee   that  the  goods  were   ''properly 
packed  but  roughly  handled."     If  the  voyage  is  a  smooth 
one  through  summer  seas,  the  goods  may  arrive  at  the 
port  of  Valparaiso  in  prime  condition.    Here  the  ship  drops 
anchor  in  the  open  roadstead,  where  the  bobbing  lighters 
come    alongside   to   receive   the   cargo.     The   great    rope 
sling  is  again  spread  out  and  the  ship's  crew,  assisted  by 
murderous-looking  longshoremen,  roll  or  tumble  the  goods 
end  upon  end  or  heave  them  from  the  top  of  some  tier 
packed  close  to  the  roof  to  the  ship's  floor,  where  they  are 
jammed  together  into  the  net,  and  hauled  up  rasping  and 
grinding  against  the  hatches  and  let  down  with  a  smash 


OCEAN  FREIGHT  171 

and  a  jolt  into  the  lighter,  which  conveys  them  to  the 
wharf,  where  they  are  again  roughly  unloaded.  Passed 
through  the  custom-house  through  the  services  of  a  cus- 
toms broker,  they  are  ready  to  start  on  their  inland  jour- 
ney over  stiff  grades  on  an  open  flat  car  to  the  end  of  the 
railroad;  then,  strapped  on  burros  or  mules,  they  go  jog- 
ging on  their  way  to  reach  the  buyer  after  a  ten-day  trip, 
during  which  they  have  been  left  out  in  the  open  at  night 
and  subjected  to  all  the  extremes  of  heat  and  cold  and  the 
varying  degrees  of  moisture  that  are  to  be  encountered  on 
such  a  journey.  Unless  each  case  was  perfectly  packed 
and  was  lined  with  tarpaulin  or  other  moisture-proof  ma- 
terial, the  customer  will  open  the  long-awaited  shipment 
only  to  find  that  the  goods  are  broken,  marred,  dented,  or 
rusted,  in  which  case  he  firmly  vows  never  to  place  another 
order  in  the  United  States. 

The  Effect  of  Packing  on  Freight  and  Tariff  Charges. — 
Not  only  must  overseas  shipments  be  packed  so  as  to  with- 
stand the  roughest  handling,  an  equally  important  con- 
sideration is  the  effect  of  packing  on  freight  and  tariff 
charges.  In  some  countries  the  duties  are  ad  valorem, 
in  others  specific  duties  are  charged,  according  to  the  classi- 
fication of  the  articles  or  according  to  weight.  The  duty 
may  be  on  the  gross  weight,  which  includes  that  of  the  pack- 
ing; on  the  legal  weight,  which  is  the  weight  of  the  goods 
plus  the  container  but  not  the  outer  wrappings;  or  on  the 
net  weight,  which  is  the  weight  of  the  goods  less  that  of 
containers  and  other  packing.  When  the  gross  weight 
is  the  basis  of  duties,  it  is  necessary  to  keep  the  weight  of 
the  packing  materials  as  light  as  is  consistent  with  strength 
and  durabihty.  The  use  of  battens,  of  iron  and  steel  hoops 
and  straps,  and  of  strong  but  light  materials,  for  boxes  and 
crates  reduces  the  weight  without  decreasing  the  resistance. 
The  number  of  crates  or  packages  is  of  importance,  as  there 
are  often  fixed  charges  per  package,  regardless  of  weight. 
On  the  other  hand,  extremely  large  or  heavy  packages  are 


172     FOREIGN  TRADE   OF   UNITED   STATES 

impracticable  in  many  cases  on  account  of  the  difficulties 
of  transportation.  Since  ocean  freight  is  charged  by  vol- 
ume, unnecessary  bulk  means  excess  freight  charges. 

Goods  subject  to  tariff  duties  are  usually  classified,  the 
duty  for  one  class  often  being  many  times  as  great  as  for 
another  and  quite  similar  class.  When  articles  of  different 
classes  are  packed  in  the  same  case,  the  result  is  that  the 
entire  contents  of  the  case  are  charged  the  highest  rate  of 
duty.  It  is  sometimes  necessary  to  pack  two  parts  of  one 
article  separately.  Sometimes  the  removal  of  nickel  or 
brass  or  other  parts  will  make  an  amazing  difference  in  the 

duty. 

The  description  of  the  article  in  the  invoice  or  the  speci- 
fying of  the  use  to  which  it  is  to  be  put  may  affect  the  duty. 
For  instance,  tools  for  use  in  mining  are  admitted  duty  free 
in  some  Latin  American  republics,  while  tools  for  other 
purposes  are  assessed  heavy  duties.  This  phase  of  the 
packing  question  is  well  brought  out  by  Chester  Lloyd 
Jones  in  his  monograph  entitled  The  Consular  Seroice  oj 
the  United  States,  as  follows: 

The  importance  of  filling  orders  with  exactness  has  been  re- 
peatedly pointed  out,  a  slight  deviation  in  width  or  failure  to  state 
the  character  of  goods  often  subjecting  the  importer  to  fines, 
delays,  and  higher  duties.  The  frequent  diflEiculties  which  arise 
are  typified  by  a  dispute  which  arose  in  a  Brazilian  custom-house 
over  a  case  of  "stamped  ware"  (iron)  which  was  listed  as  "prints" 
with  customs  charged  by  weight.  Such  difiiculties  are  not  con- 
fined to  the  Latin  American  coimtries,  however,  as  it  is  a  caution 
constantly  reiterated  that  in  sending  products  with  metal  parts 
to  Germany  or  Russia,  for  example,  the  different  metals  should  be 
packed  separately,  as  otherwise  charge  will  be  the  rate  for  the 
highest-class  article  in  the  package.  Under  these  rulings,  heavy 
engines  have  been  listed  as  "manufactured  nickel  ware"  and 
lamps  as  "gilded  brass  fixtures." 

Importers  of  countries  having  such  tariff  regulations 
often  furnish  a  detailed  statement  as  to  the  packing  and 
description  of  the  articles.     The  exact  wording  to  be  used 


OCEAN  FREIGHT  173 

in  the  consular  invoice  is  not  infrequently  furnished  the 
exporter  in  the  language  to  be  used,  thus  safeguarding  the 
importer  against  fines  and  excessive  duties.  While  the 
precautions  necessary  seem  burdensome,  they  become  a 
matter  of  routine  with  investigation,  study,  and  the  col- 
lection of  detailed  information. 

BIBLIOGRAPHY 

Exporters^  Encyclopmdia.    New  York,  191 7. 

Hough,  B.  O.     Ocean  Traffi-c  attd  Trade.     Chicago,  1914. 

Johnson,  Emory  R.      Ocean   and  Inland  Water  Transportation. 

New  York,  1906. 
Johnson,  Emory  R.     Principles  of  Ocean  Transportation.     New 

York,  1918. 
Smith,  Joseph  Russell.     The  Ocean  Carrier.     New  York,  1908. 
Smith,  Joseph  Russell.     The  Organization  of  Ocean  Commerce. 

Philadelphia,  1905. 


CHAPTER  XIV 
MARINE  INSURANCE 

Importance. — Marine  insurance  is  an  important  factor  in 
overseas  commerce,  for  by  relieving  the  shipper  of  the  risk 
of  loss  at  sea  it  has  greatly  encouraged  the  extension  of 
trade  beyond  continental  boundaries.  Its  importance  in 
facilitating  the  financing  of  overseas  shipments  is  para- 
mount. Without  marine  insurance  to  cover  the  ordinary 
losses  that  may  occur,  bankers  would  be  unwilling  to  dis- 
count bills  of  exchange  drawn  against  imports  or  exports. 
Without  being  able  to  realize  on  goods  sold  abroad  before 
they  reached  their  destination  and  were  paid  for,  manu- 
facturers and  others  engaged  in  export  trade  would  find 
it  impossible  to  extend  the  credit  their  customers  require 
and  demand,  and  the  result  would  be  that  the  free  inter- 
change of  the  surplus  products  of  one  country  for  those  of 
others  would  be  retarded,  and  the  volume  of  international 
trade  would  be  comparatively  small. 

Lloyd^s  Association. — Lloyd's  Association  of  London  has 
had  the  controlling  influence  in  marine  insurance  for  over 
two  centuries.  This  association  received  its  name  from  a 
London  coffee-house  conducted  by  Edward  Lloyd  in  the 
middle  of  the  seventeenth  century,  which  was  frequented 
by  those  interested  in  marine  insurance.  Here  all  the  in- 
formation available  as  to  the  value,  condition,  and  move- 
ments of  vessels  was  collected,  disseminated,  and  discussed, 
and  those  engaged  in  underwriting  marine  insurance  had 
ample  opportunity  offered  them  to  select  the  risks  they 
preferred. 

The  association  as  now  organized  is  composed  of  some 
400  underwriters,  each  conducting  business  on  an  inde- 
pendent basis,  but  operating  from  the  same  place,  the 

174 


MARINE  INSURANCE  175 

Royal  Exchange,  and  following  the  same  general  plan  of 
business.  The  following  description  of  the  methods  fol- 
lowed by  Lloyd's  is  taken  from  an  article  in  the  Quarterly 
Review  for  April,  19 14. 

The  bulk  of  the  business  is  brought  to  Lloyd's  by  brokers  who 
have  their  representatives  at  different  countries;  the  marine-in- 
surance companies,  of  which  there  are  some  ten  or  a  dozen  in  the 
immediate  neighborhood  of  the  Royal  Exchange,  get  their  business, 
on  the  other  hand,  largely  from  their  own  agents  at  ports  all  over 
the  world.  .  .  .  Let  us  follow  the  method  of  procedure.  A  broker 
receives  an  order  to  insure,  say,  10  boats  of  values  between  £30,- 
000  and  £50,000  apiece.  That  may  mean  a  total  amount  of 
about  £400,000  to  be  insured.  He  approaches  a  leading  under- 
writer and  gets  him  to  quote  a  rate.  If  the  terms  are  satisfactory 
to  the  owner,  the  broker  will  get  this  underwriter  to  lead  off  with 
a  certain  amount.  Perhaps  this  underwriter  will  write  the  sum  of 
£300  on  each  boat;  then  the  broker  goes  to  the  other  underwriters 
and  offers  them  the  insurance  at  that  rate.  These  men  may  either 
write  similar  or  smaller  amounts,  according  to  their  judgment, 
fancy,  or  finance.  If  it  is  a  big  order,  the  broker  may  sometimes 
be  hard  pressed  to  complete  it,  and  he  may  have  to  call  in  the  aid 
of  small  men  who  will  be  prepared,  perhaps,  to  write  £100  each. 
.  .  .  Years  ago  many  men  wrote  for  themselves  alone;  nowadays 
it  is  customary  for  one  man,  known  as  the  underwriting  agent, 
to  act  for  a  syndicate  of  from  three  to  a  dozen  names.  These 
''names"  have  a  position  analogous  to  sleeping  partners  in  private 
firms.  They  rarely  visit  Lloyd's.  .  .  .  The  underwriting  agent 
may  receive  a  certain  fixed  salary  for  acting  for  them,  in  addition 
very  often  to  a  percentage  of  the  profits.  In  almost  every  case, 
too,  he  writes  for  himself. 

The  association  makes  good  any  deficiencies  in  the  settle- 
ments of  its  underwriting  members.  The  association  has 
agents  located  in  practically  every  port  in  the  world  whose 
function  it  is  to  keep  Lloyd's  informed  with  regard  to  each 
and  every  fact  in  any  way  affecting  shipping.  The  in- 
formation thus  received  is  pubHshed  for  the  benefit  of  the 
members  of  the  association. 

Definition  of  Terms. — The  terms  used  in  marine  in- 
surance are  for  the  most  part  the  same  as  those  used  in 


176    FOREIGN  TRADE  OF  UNITED   STATES 

other  insurance.  The  policy  is  the  document  expressing 
the  contract  entered  into  between  the  assured  and  the  as- 
surer. The  assured  is  usually  a  merchant  making  a  ship- 
ment or  a  shipowner.  The  assurer  is  usually  referred  to 
as  the  underwriter.  The  premium  is  the  money  paid  to 
the  underwriter  for  covering  the  risk.  The  risk  is  the  peril 
or  danger  insured  against.  It  is  also  used  to  mean  the 
liabihty  of  the  underwriter  under  his  contract.  An  in- 
surance broker  is  the  agent  who  arranges  with  the  insurer 
for  the  policy.  These  definitions  are  mostly  taken  from 
the  work  of  William  Gow  on  Marine  Insurance, 

The  Standard  Policy. — The  standard  marine-insurance 
policy  is  expressed  in  practically  the  same  v/ay  to-day  as 
it  was  over  a  century  ago.  Consequently,  the  language 
used  is  antiquated  and  difficult  to  understand.  Every 
clause  in  the  standard  policy  has  been  interpreted  by  the 
courts,  but  the  ordinary  reader  does  not  know  just  what 
the  correct  construction  is;  he  must  depend  upon  a  marine- 
insurance  expert  to  explain  the  policy.  It  is  said  that  not 
one  marine-insurance  broker  in  ten  understands  the  exact 
conditions  of  the  poHcies  he  writes. 

Until  recent  years  only  one  form  of  marine-insurance 
pohcy  was  used.  This  was  adapted  to  the  special  condi- 
tions of  the  contract  by  means  of  indorsements  added  to 
the  printed  form.  There  are  now  different  forms  printed, 
all  following  in  general  the  standard  form,  but  each  de- 
signed to  cover  a  particular  kind  of  risk.  The  principal 
classes  of  poHcies  are  as  follows:  A  time  policy  is  one  in 
which  the  property  is  insured  for  a  certain  period  of  time. 
A  voyage  policy  is  one  in  which  the  property  is  insured 
for  transit  from  one  point  to  another.  A  valued  policy 
is  one  in  which  the  amount  at  which  the  insured  property 
is  valued  is  stated.  An  open  poHcy  is  one  in  which  no 
value  is  stated;  in  case  of  loss  or  damage  the  value  must  be 
proved.  A  named  policy  states  the  name  of  the  vessel 
and  the  limits  of  the  voyage.    A  floating  policy  does  not 


MARINE  INSURANCE  177 

name  the  vessel  carrying  the  risk,  but  does  signify  the  limits 
of  the  voyage,  and  usually  specifies  the  class  of  vessel  to 
be  used;  when  the  goods  are  shipped,  the  name  of  the  vessel 
is  furnished  the  underwriter,  so  that  it  may  be  indorsed 
on  the  policy. 

The  first  part  of  the  standard  marine-insurance  policy 
names  the  person  insured,  gives  a  general  description  of 
the  objects  insured,  and  states  the  duration  of  the  risk. 
The  second  part  of  the  policy  describes  the  kind  of  risk 
covered,  or  the  perils  insured  against.  It  is  important  to 
note  that  a  marine-insurance  policy  does  not  guaranty  the 
safe  arrival  of  the  goods  insured  at  the  point  of  destination. 
The  policy  covers  only  the  perils  specified  and  the  under- 
writers ''are  just  as  plainly  exempt  from  liability  to  in- 
demnify the  assured  against  loss  arising  from  any  peril 
not  specified."  This  is  of  the  greatest  importance,  as  not 
infrequently  it  happens  that  a  shipper  supposes  that  his 
goods  are  insured  against  any  possible  loss  that  may  occur, 
regardless  of  the  cause,  when  the  fact  is  that  the  insurance 
covers  only  certain  contingencies. 

Losses  Insured  Against. — The  losses  covered  by  a  marine- 
insurance  policy  are  expressed  in  the  following  phraseology, 
which  is  the  language  used  by  Lloyd's: 

Touching  the  adventures  and  perils  which  we,  the  assurers,  are 
contented  to  bear  and  do  take  upon  us  in  this  voyage,  they  are, 
of  the  seas,  men-of-war,  fire,  enemies,  pirates,  rovers,  thieves, 
jettisons,  letters  of  mart  and  countermart,  surprisals,  takings  at 
sea,  arrests,  restraints  and  detainments  of  all  kings,  princes,  and 
people,  of  what  nation,  condition,  or  quality  soever,  barratry  of 
the  master  and  mariners,  and  of  all  other  perils,  losses,  or  misfor- 
tunes that  have  or  shall  come  to  the  hurt,  detriment,  or  damage  of 
the  said  goods  and  merchandise  and  ship,  etc.,  or  any  part  thereof. 

This  is  a  formidable  list  that  would  seem  to  cover  every 
possible  mishap  that  either  ship  or  cargo  might  encounter. 
But  by  the  process  of  interpretation  and  indorsement  the 
risks  against  which  the  property  have  been  insured  have 


178    FOREIGN   TRADE   OF   UNITED   STATES 

been  reduced  to  comparatively  few.  In  the  first  place  the 
risks  are  designated  as  '^  adventures  and  perils,"  which  in- 
dicates that  the  insurance  is  limited  to  fortuitous  accidents 
or  casualties  of  the  sea.  Consequently,  ''loss  or  damage 
arising  from  wear  and  tear  and  from  inherent  defect"  is 
not  covered.  The  limitations  of  the  meaning  of  the  words 
*' perils  of  the  seas"  are  indicated  by  the  following  quota- 
tion from  a  court  decision  cited  in  William  Gow's  work  on 
Marine  Insurance^  Chapter  VI:  ''It  is  well  settled  that 
it  is  not  every  loss  or  damage  of  which  the  sea  is  the  im- 
mediate cause  that  is  covered  by  these  words.  They  do 
not  protect,  for  example,  against  that  natural  and  inevitable 
action,  which  results  in  what  may  be  described  as  wear 
and  tear.  There  must  be  some  casualty,  something  which 
could  not  be  foreseen  as  one  of  the  necessary  accidents  of 
the  adventure." 

If  a  vessel  springs  a  leak  that  is  not  due  to  accident,  but 
to  unseaworthiness  at  the  time  of  sailing,  the  insurance 
company  is  not  liable  for  loss  resulting.  Proper  protection 
can  be  secured  by  having  a  clause  inserted  in  the  policy 
admitting  the  seaworthiness  of  the  vessel.  Such  a  clause 
makes  leaks  and  any  other  similar  accidents  the  results  of 
the  perils  of  the  sea. 

Partial  Loss. — Since  an  insurance  policy  contracts  to 
indemnify  the  insured  against  partial  as  well  as  total  loss, 
it  is  necessary  to  consider  just  what  damages  are  construed 
to  result  from  perils  of  the  sea.  Partial  loss  includes  a  loss 
of  part  of  the  goods  and  a  loss  of  value  due  to  damages  sus- 
tained. Such  damage  must  not  result  from  negligence  of 
the  assured  or  his  agents  nor  from  the  essential  character 
or  natural  quality  of  the  object  insured  nor  from  ordinary 
wear  and  tear.  If  goods  deteriorate  or  lose  their  value  dur- 
ing transit,  the  underwriter  is  not  liable  for  damages  unless 
the  damage  is  due  to  some  outside  and  accidental  influence. 
For  instance,  it  has  been  decided  that  hides  rotted  as  the 
result  of  being  wet  by  sea-water  in  the  hold  incurred  the 


{ 


MARINE  INSURANCE  179 

loss  through  a  peril  of  the  sea,  and  that,  furthermore, 
tobacco  spoiled  by  the  reek  of  the  putrid  hides  likewise 
suffered  from  a  peril  of  the  sea.  In  the  latter  instance,  it 
was  held  that  a  peril  of  the  sea  was  the  proximate  or  in- 
direct cause  of  the  loss.  On  the  other  hand,  it  has  been 
held  that  damage  to  a  cargo  of  wheat  caused  by  sweating, 
which  was  due  to  the  wheat  being  imperfectly  dried  or 
cured  before  shipment  was  made,  was  the  result  of  the  in- 
herent nature  of  the  grain.  The  fact  that  dampness  in  the 
hold  was  a  contributing  factor  in  causing  the  sweating  did 
not  make  the  damage  the  result  of  a  peril  of  the  sea. 

War  Risk. — Though  the  perils  specified  in  the  policy 
would  seem  to  include  every  possible  war  risk,  these  are 
all  excepted  or  cancelled  by  a  special  indorsement.  Sep- 
arate war-risk  insurance  is  available  when  needed  but  is 
not  included  in  the  standard  marine-insurance  policy. 

Fire. — Fire  is  recognized  as  a  peril  insured  against, 
though  where  fire  is  the  result  of  spontaneous  combustion 
it  is  held  that  the  underwriters  are  responsible  for  loss  or 
damages  incurred  by  the  ship  or  cargo,  but  not  to  that  part 
of  the  cargo  in  which  such  fire  originated.  If  the  entire 
cargo  consisted  of  one  kind  of  goods,  as  coal,  and  fire 
spontaneously  broke  out  in  this,  the  underwriters  would 
not  be  liable  for  the  loss  of  the  coal. 

General  Average. — ^A  peril  insured  against  is  jettison, 
which  means  the  throwing  of  goods  overboard  in  order  to 
lighten  a  ship  in  case  of  storm  or  accident.  The  loss  thus 
sustained  is  known  as  general  average.  It  is  prorated 
and  charged  against  the  cargo,  each  shipper  being  assessed 
with  his  proportionate  share.  A  loss  to  be  covered  by 
general  average  must  be  from  a  sacrifice  made  to  protect 
both  the  ship  and  the  cargo  for  the  benefit  of  all.  In- 
cluded in  general  average  is  any  other  expense  incurred  to 
avert  an  imminent  disaster  or  danger  threatening  the  ship 
and  cargo.  General  average  has  been  legally  defined  as 
*'all   loss   which   arises   in   consequence   of   extraordinary 


i8o    FOREIGN  TRADE   OF   UNITED   STATES 

sacrifices  made,  or  expenses  incurred,  for  the  preservation 
of  the  ship  and  cargo."  Ordinary  losses  and  damages  sus- 
tained by  the  ship  must  be  borne  by  the  shipowner.  A 
sacrifice  to  be  classed  as  general  average  must  be  voluntary, 
extraordinary,  for  the  benefit  of  both  ship  and  cargo  and 
incurred  in  an  emergency. 

Barratry,  Seizure,  and  Other  Perils. — Barratry  is  de- 
fined as  any  species  of  cheating  or  fraud,  in  a  shipmaster, 
by  which  the  owners  or  insurers  are  injured;  as,  by  running 
away  with  the  ship,  sinking  or  deserting  her,  by  wilful  de- 
viation, or  by  embezzHng  the  cargo.  It  is  ''  an  act  of  wrong 
done  by  the  master  against  the  ship  and  goods."  In  in- 
suring a  ship  and  cargo  against  this  peril,  the  underwriters 
are  taking  upon  themselves  the  risk  of  dishonesty  on  the 
part  of  the  master  of  a  ship  and  his  crew.  Under  the 
present  highly  organized  system  of  keeping  in  touch  with 
ships,  resulting  from  the  use  of  the  cable  and  of  wireless 
telegraphy,  the  risk  from  this  peril  is  minimized. 

The  risks  from  capture,  seizure,  and  detention  are  ex- 
cepted in  policies  by  writing  the  letters  F.  C.  &  S.  in  the 
margin,  which  signify  ''free  of  capture  and  seizure."  These, 
like  war  risks,  may  be  especially  insured  against. 

The  enumeration  of  the  perils  insured  against  is  fol- 
lowed, in  the  standard  policy,  by  the  general  statement, 
beginning,  ''And  of  all  other  perils,  losses,  or  misfortunes." 
This  does  not  mean  that  the  underwriters  assume  HabiHty 
for  every  kind  of  peril  or  loss  that  may  happen.  The  clause 
is  construed  to  apply  to  perils  of  a  very  similar  nature  to 
those  specified.  Its  effect  is  to  slightly  broaden  the  con- 
struction of  the  policy  in  law.  It  does  not  include  any 
peril  fundamentally  different  from  those  enumerated. 

Additional  Clauses. — In  order  to  make  the  insurance 
policy  fit  the  particular  conditions  applying  to  the  prop- 
erty insured,  it  is  customary  for  the  underwriters  or  their 
agents  to  add  clauses  as  required.  Clauses  so  added  to 
a  poHcy  are  interpreted  as  follows :  The  printed  conditions 


MARINE  INSURANCE  i8i 

are  modified  by  first  printed  clauses  pasted  to  the  policy, 
these  by  the  typewritten  or  written  clauses,  and  then  by 
clauses  written  on  slips  and  pinned  to  the  policy.  These 
various  additions  are  known  as  indorsements. 

An  additional  clause  found  in  all  standard  policies  is 
the  one  defining  the  conditions  under  which  partial  loss  or 
damage  to  insured  property  is  to  be  met.  This  is  known 
as  particular  average.  Such  partial  loss  must  be  caused 
by  the  perils  insured  against.  LiabiHty  for  particular 
average  under  5  per  cent  of  the  value  of  the  goods  insured 
is  excluded  in  most  policies.  This  form  of  policy  is  referred 
to  as  an  f.  p.  a.  policy,  or  one  free  from  particular  average. 

Particular  charges  are  expenses  incurred  for  the  protec- 
tion or  preservation  of  the  goods  insured,  other  than  gen- 
eral average  and  salvage  charges.  These  are  not  included 
in  general  average  or  in  particular  average.  They  are 
covered  in  the  poHcy  by  the  clause  granting  permission  to 
''sue,  labor,  and  travel  for,  in  and  about  the  defense,  safe- 
guard, and  recovery  of  the  goods."  Such  special  charges 
are  recoverable  from  the  underwriters. 

While  loss  from  thieves  is  one  of  the  perils  insured  against, 
it  is  necessary  to  have  an  additional  clause  to  cover  pilfer- 
age by  a  member  of  the  crew  or  by  a  passenger.  Thieves 
as  used  in  the  policy  refers  to  pirates  and  other  depredators. 

Other  hazards  that  may  be  covered  by  additional  clauses 
include  those  arising  from  pilferage,  breakage,  damage  re- 
sulting from  water  in  the  hold,  and  losses  sustained  while 
the  goods  are  on  piers  or  lighters,  in  warehouses,  and  on  the 
dock  at  the  port  of  shipment  and  at  the  port  of  entry.  It 
is  customary  for  shippers  to  take  out  insurance  on  valuable 
shipments  covering  all  ordinary  hazards  from  the  time  the 
consignment  arrives  at  the  port  of  departure  until  it  reaches 
the  consignee. 

Taking  Out  Marine  Insurance. — Most  of  the  large  fire- 
insurance  companies  issue  marine  insurance.  Shippers 
arrange  for  it  either  at  the  place  of  manufacture  or  at  the 


1 82    FOREIGN  TRADE   OF   UNITED   STATES 

port  of  shipment,  as  preferred.  Large  exporters  usually 
take  out  what  is  known  as  an  open  policy,  which  is  issued 
for  a  stipulated  length  of  time.  Each  shipment  is  covered 
under  such  a  policy  as  it  is  made.  Notice  is  sent  to  the 
insurance  company  as  soon  as  each  shipment  is  made,  and 
full  particulars  are  given  to  enable  the  company  to  fix  the 
premium.  Thereupon  a  certificate  of  insurance  is  issued 
by  the  insurance  company  and  forwarded  to  the  shipper. 

Insurance  certificates  are  made  payable  to  the  order  of 
the  shipper,  who  indorses  them  in  blank  when  they  are 
turned  over  to  a  bank  as  part  of  a  documentary  bill  of  ex- 
change, or  when  they  are  forwarded  direct  to  the  consignee. 
It  is  customary  to  take  out  marine  insurance  for  a  sum 
equal  to  the  selling  price  of  the  goods,  plus  lo  per  cent, 
plus  the  cost  of  the  freight;  this  is  considered  to  be  the 
value  of  the  goods  at  the  port  of  destination. 

Where  shipments  are  financed  through  a  bank,  it  is 
necessary  for  the  insurance  to  be  taken  out  by  the  shipper; 
otherwise  the  security  for  the  draft  would  be  inadequate. 
When  the  foreign  customer  pays  cash  for  the  merchandise, 
he  sometimes  prefers  to  arrange  for  the  insurance  through 
his  own  agent.  Marine  insurance  is  issued  for  goods  sent 
by  mail,  by  express,  or  by  freight. 

BIBLIOGRAPHY 

Chubb,  Hendon.  Development  of  American  Marine  Insurance. 
In  National  Foreign  Trade  Convention.  Official  Report  of 
the  Fifth  Meeting,  April  18-20,  1918.     1918. 

CoNGDON,  Ernest  W.     General  Average.     New  York,  191 3. 

Duckworth,  L.  An  EficyclopcBdia  of  Marine  Law.  New  York, 
1907. 

Duckworth,  L.  An  Epitome  of  the  Law  Afecting  Marine  Insur- 
ance.    2d  edition  revised  and  enlarged.     London,  1907. 

Fox,  B.  H.  Principles  of  Marine  Insurance  Essential  for  the  Ex- 
porter and  Importer  to  Know.  Economic  World,  n.  s.,  vol.  15, 
pp.  457-8,  March  30,  1918. 

Gow,  William.     Marine  Insurance  :  a  Handbook.    London,  19 10. 


MARINE  INSURANCE  183 

Gow,  William.  Sea  Insurance  According  to  British  Statute.  New 
York,  1914. 

HuEBNER,  Solomon.  Property  Insurance,  Fire  aftd  Marine  In- 
surance, etc.     New  York,  1911. 

Johnson,  Emory  Richard,  and  Huebner,  Grover  G.  Principles 
of  Ocean  Transportation.     New  York,  191 8. 

Keate,  Henry.     TIw  Students^  Guide  to  Marine  Insurance.     191 1. 

Leake,  P.  D.  Marine  Insura^ice  Time  Premium  Tables.  Chi- 
cago. 

0\VEN,  Douglas.    Ocean  Trade  and  Shipping.    New  York,  1914. 

ScRUTTON,  Thomas  Edward.  Charter  Parties  and  Bills  oj  Lading. 
Toronto,  19 14. 

Templeman,  Frederick.  Marine  Insurance ;  Its  Principles  and 
Practice.    London,  The  London  Chamber  of  Commerce,  1903. 


CHAPTER  XV 
THE  EXTENSION  OF  CREDIT 

The  Importance  of  Credit. — One  of  the  most  vital  factors 
in  foreign  trade  is  the  term  of  credit  upon  which  business 
is  conducted.  The  statement  is  persistently  made  that 
the  average  American  manufacturer  does  not  meet  his 
European  competitor  in  the  matter  of  the  extension  of 
credit  to  his  foreign  customers.  Investigation  tends  to 
show  that  this  charge  is  not  made  without  cause.  While 
there  are  manufacturers  in  the  United  States  who  offer  just 
as  favorable  credit  terms  to  foreign  customers  as  they  can 
obtain  from  German,  English,  or  other  European  houses, 
the  average  American  manufacturer  who  *' dabbles"  in 
foreign  trade  is  still  shy  of  the  comparatively  easy  credit 
arrangements  demanded  by  so  many  European  and  Latin 
American  importers. 

It  is  an  estabhshed  fact  that  the  bulk  of  export  business 
of  the  world  is  transacted  on  a  basis  of  90  days  sight  or 
longer.  European  houses  that  have  built  up  extensive  and 
profitable  business  with  foreign  customers  have  established 
the  custom  of  selling  goods  on  these  terms,  or  on  even  more 
liberal  terms.  The  American  manufacturer  who  is  not 
prepared  to  finance  his  shipments  on  this  basis  cannot 
hope  to  carry  on  a  successful  direct  export  business.  He 
must  sell  through  an  export  house,  which  will  pay  cash  at 
the  seaport,  and  exact  the  usual  middleman's  profit. 

One  reason  for  the  failure  or  discouragement  that  has 
met  the  efforts  of  American  manufacturers  to  estabKsh 
a  profitable  export  business  is  that  they  have  attempted 
to  do  business  on  a  cash  or  practically  cash  basis.  They 
have  expected  to  receive  cash  with  the  order  or  when  the 

184 


THE  EXTENSION  OF   CREDIT  185 

order  was  shipped.  Others  have  thought  to  extend  credit 
only  until  the  goods  were  received  by  the  customer,  drawing 
a  draft  to  be  accepted  through  a  bank  before  the  bill  of 
lading  was  delivered,  the  draft  to  be  paid  at  sight  or  at 
thirty  days  sight.  This  is  only  practicable  when  there  is 
little  or  no  competition  from  houses  of  other  nationahty. 

Necessity  for  Credit. — The  necessity  of  transacting  for- 
eign business  on  a  credit  basis  is  evident.  In  the  first 
place,  that  is  the  established  custom  in  export  trade  and 
the  firm  that  refuses  to  extend  credit  cannot  get  the  busi- 
ness. The  time  required  for  the  delivery  of  goods  and  for 
their  passage  through  the  custom-house  is  an  important 
factor  that  makes  the  payment  of  cash  in  advance  by  the 
importer  a  hardship  in  many  cases.  The  custom  of  some 
manufacturers  of  demanding  ^'cash  against  documents" 
in  New  York  is  one  that  all  exporting  firms  would  like  to 
follow,  but  it  is  not  one  calculated  to  build  up  an  extensive 
and  permanent  foreign  trade. 

Countries  devoted  principally  to  agriculture  are  es- 
pecially dependent  on  credit.  When  the  crops  are  marketed 
the  farmer  pays  his  bills,  with  the  result  that  the  retailer 
who  has  extended  credit  to  the  farmer  is  enabled  to  meet 
his  obKgations  at  this  time.  The  importer  is  then  in  a 
position  to  pay  for  the  foreign  goods  he  has  purchased 
throughout  the  year,  and  this  is  the  system  that  he  is  de- 
termiined  to  follow.  To  be  called  upon  to  pay  for  imports 
at  an  earher  date  would  seriously  handicap  many  large 
firms  of  unquestioned  standing  in  Latin  America  and  other 
countries  where  the  tide  of  business  ebbs  and  flows  with  the 
seasons. 

Another  factor  of  importance  in  credit  arrangements 
is  the  seasonal  fluctuations  in  exchange.  This  is  especially 
true  in  regard  to  Latin  America.  Exchange  is  profitable 
there  at  the  time  the  principal  exports  are  being  marketed ; 
consequently,  this  is  the  time  when  importers  prefer  to  pay 
their  bills.     At  this  time  there  is  an  influx  of  bills  of  ex- 


1 86    FOREIGN  TRADE   OF   UNITED   STATES 

change  from  foreign  buyers,  and  exchange  on  other  coun- 
tries may  be  purchased  at  a  low  rate. 

Wherever  possible,  business  finns  the  world  over  desire 
to  turn  over  the  goods  they  purchase  before  paying  for  them; 
otherwise,  too  much  capital  is  required  to  carry  on  business. 
Where  there  is  a  close  business  relation  between  importers 
and  banks,  and  money  can  be  borrowed  at  low  rates  of 
interest,  the  demand  for  a  fairly  long  credit  period  is  not 
so  consistent,  but  where  banks  ask  a  high  rate  of  interest, 
as  in  many  parts  of  Latin  America,  where  12  per  cent  is 
not  considered  exorbitant,  the  term  of  credit  is  of  the  ut- 
most importance.  Not  infrequently  the  obtaining  of  a 
liberal  credit  term  quite  overbalances  considerations  of 
price  and  quality,  and  contracts  are  given  on  this  basis. 

Credit  Caution. — It  must  not  be  assumed  that  because 
the  American  manufacturers  have  been  criticised  for  a 
narrow  credit  policy  in  foreign  trade  a  looseness  or  care- 
lessness in  credit  arrangements  is  to  be  reconmiended. 
There  are  certain  fundamental  business  principles  that 
govern  here  just  as  in  domestic  transactions.  For  the 
American  manufacturer  to  take  undue  risks,  to  extend 
credit  to  foreign  customers  without  thorough  investigation 
of  their  financial  responsibility  and  business  standing,  to 
sell  goods  without  having  a  definite  agreement  as  to  the 
time  at  which  payment  is  to  be  made,  or  to  encourage  open 
accounts,  except  in  special  cases,  are  alike  unwise,  unbusi- 
nesslike, and  undesirable  methods. 

Whenever  possible,  personal  investigation  by  a  repre- 
sentative of  the  manufacturer  is  made  of  the  financial 
standing  and  business  reputation  of  prospective  customers, 
and  this  information  is  checked  up  from  time  to  time. 
This  is  one  of  the  duties  of  travelling  salesmen  in  foreign 
fields.  The  information  thus  gained  is  used  as  the  basis 
for  further  and  systematic  investigation  by  the  credit  de- 
partment or  whoever  has  this  branch  of  the  foreign  busi- 
ness in  charge.     Inquiries  are  continually  being  received 


THE  EXTENSION  OF   CREDIT  187 

by  United  States  consuls  as  to  the  responsibility  of  foreign 
firms.  While  consuls  are  instructed  to  send  to  exporters 
making  inquiry  the  names  of  commercial  houses  in  good 
repute  who  might  be  interested  in  their  lines,  they  are 
forbidden  to  report  upon  the  financial  standing  or  commer- 
cial repute  of  business  men  or  houses  in  their  district.  The 
various  channels  through  which  reliable  credit  information 
can  be  obtained  will  be  discussed  elsewhere. 

The  different  methods  used  in  the  extension  of  credit  to 
foreign  customers  will  now  be  considered. 

Methods  of  Extending  Credit. — There  are  three  distract 
ways  in  which  credit  may  be  extended  to  foreign  customers. 
The  first  and  most  corrmion  method  is  to  make  the  ship- 
ment subject  to  the  acceptance  of  drafts,  which  are  for- 
warded along  with  the  bill  of  lading  and  other  documents 
to  a  bank  in  the  foreign  country  for  collection.  The 
second  method  is  to  make  the  sale  on  open  credit.  The 
third  and  least  common  method  is  to  sell  on  long-time 
credit.     Each  of  these  requires  careful  study. 

Credit  Against  Acceptances. — The  basis  on  which  the 
greater  part  of  international  trade  is  transacted  is  ninety 
days  credit.  Such  credit  is  extended  only  against  the  ac- 
ceptance of  a  draft,  which  is  attached  to  the  bill  of  lading 
and  forwarded  through  a  bank.  The  insurance  certificate 
and  a  copy  of  the  invoice  usually  accompany  the  draft 
and  bill  of  lading.  Sometimes  the  invoice  is  omitted. 
The  three  documents  first  mentioned  comprise  a  foreign 
commercial  bill  of  exchange.  The  draft  represents  the 
amount  due  the  manufacturer  for  the  goods  specified  in  the 
bill  of  lading  plus  whatever  charges  are  rightfully  added. 
The  bUl  of  lading  is  the  contract  between  the  shipper  and 
the  transportation  company  for  the  carrying  of  the  mer- 
chandise. The  importer  or  consignee  cannot  obtain  posses- 
sion of  the  goods  without  the  bill  of  lading. 

When  the  documents  are  received  at  the  foreign  bank  to 
which  they  are  sent  by  the  local  bank,  the  consignee  is 


1 88    FOREIGN  TRADE   OF  UNITED   STATES 

notified.  He  may  accept  the  draft  and  secure  the  bill  of 
lading  at  once,  or  he  may  prefer  to  wait  until  he  is  certain 
that  the  shipment  has  arrived.  Occasionally  foreign  con- 
signees insist  upon  taking  their  time  before  accepting  the 
draft,  leaving  the  goods  on  the  docks  or  in  the  warehouse 
until  they  need  them.  By  so  doing  they  secure  longer 
time  in  which  to  make  payment,  as  drafts  are  usually 
drawn  at  a  specified  number  of  days  after  sight. 

In  the  case  of  a  ninety-day  draft,  some  firms  allow  30 
days  for  the  arrival  of  the  goods  and  30  days  more  for  the 
receipt  of  the  payment,  making  a  total  of  one  hundred  and 
fifty  days  credit.  It  is  customary  in  Latin  America  and  in 
some  other  countries  to  charge  interest  at  the  rate  of  6 
per  cent  per  annum  from  the  date  of  the  draft  until  the  date 
of  payment.  This  is  an  important  factor,  as  it  makes  the 
financing  of  shipments  by  discounting  drafts  much  easier. 

While  ninety  days  is  the  usual  credit  term,  documentary 
drafts  (those  attached  to  bill  of  lading  and  forwarded 
through  a  bank)  are  sometimes  drawn  for  a  period  of  six, 
nine,  or  even  twelve  months  from  date  or  from  sight, 
with  interest  at  6  per  cent. 

Open  Credit. — Foreign  business  is  sometimes  done  on  a 
basis  of  open  credit.  This  means  that  goods  are  sold  T^th 
the  agreement  that  payment  shall  be  made  at  the  end  of 
a  certain  fixed  period,  as  sixty  or  ninety  days.  The  bill 
of  lading  is  sent  direct  to  the  customer,  and  the  acceptance 
of  a  draft  is  not  required.  The  customer  is  expected  to 
remit  at  the  expiration  of  the  credit  term.  It  is  sometimes 
agreed  that  the  manufacturer  will  draw  on  the  customer 
when  payment  is  due.  It  is  to  be  noticed  that  such  a 
draft,  drawn  on  a  customer  after  he  has  received  the  goods, 
is  quite  different  from  a  documentary  draft.  It  is  called  a 
clean  draft,  because  no  documents  are  attached,  and  its 
acceptance  rests  with  the  drawee,  v/ho  may  refuse  to  accept 
without  materially  impairing  his  credit  in  banking  circles. 
Refusal  to  accept  a  documentary  draft  results  in  the  non- 


THE  EXTENSION  OF   CREDIT  189 

delivery  of  the  documents.  Refusal  to  honor  such  a  draft 
after  it  is  accepted  seriously  impairs  the  credit  standing  of 
the  drawee. 

While  many  Enghsh  firms  allow  open  credit  accounts, 
they  are  usually  confined  to  old  customers  of  known  re- 
liability and  highest  financial  standing.  Exporters  main- 
taining a  branch  office  or  resident  agent  in  a  foreign  mar- 
ket can  extend  open  credit  without  incurring  undue  risks. 
However,  the  use  of  the  documentary  draft  or  com.mercial 
bill  of  exchange  is  favored  by  the  most  successful  exporters. 
It  is  a  principle  of  all  business,  applying  to  foreign  as  well 
as  to  domestic  transactions,  that  unnecessary  risks,  careless 
methods,  and  the  haphazard  extension  of  credit  are  bound 
to  result  in  annoyance,  misunderstandings,  and  loss. 

A  consignee  who  receives  goods  with  no  obligation  to 
pay  may  be  tempted  to  delay,  evade,  trump  up  claims  for 
shortages,  or  to  ask  for  unwarranted  rebates  or  discounts, 
all  of  which  could  have  been  avoided  by  close  adherence 
to  business  principles  on  the  part  of  the  exporter. 

William  E.  Peck,  a  successful  New  York  exporter,  has 
this  to  say  of  open  credits:  *' There  is  a  sufiicient  risk  in 
draft  operations  without  even  considering  business  on  open 
account,  and  the  shipper  vrho  is  foolish  enough  to  attempt 
the  latter  is  doomed  to  failure.  Most  of  the  merchants 
south  of  the  equator,  especially  in  South  America,  know 
that  American  shippers  do  their  export  business  against 
drafts  instead  of  an  open  account  and  it  is  unnecessary, 
therefore,  to  incur  this  risk." 

Long-Time  Credits. — Exporters  are  sometimes  called 
upon  to  sell  goods  on  long-time  credits,  extending  from  one 
to  three  years.  Such  accounts  draw  a  fixed  rate  of  inter- 
est. As  a  rule  payments  are  required  at  stated  intervals. 
In  some  cases  security  is  given  in  the  form  of  a  mortgage. 
The  occasion  for  such  credits  is  the  sale  of  expensive  ma- 
chinery or  equipment  to  large  and  responsible  firms,  or 
other  equally  important  sales,  seldom  made  except  after 


I90    FOREIGN  TRADE   OF   UNITED   STATES 

personal  investigation  on  the  part  of  the  manufacturer  or 
his  representative.  As  a  rule  the  term  of  credit  does  not 
exceed  six,  nine,  or  twelve  months,  at  the  most,  though  in 
case  of  adverse  business  conditions  that  particularly  afifect 
the  importer,  English  and  German  firms  have  followed  the 
custom  of  extending  the  time  of  payment  to  meet  the  neces- 
sities of  the  case.  By  so  doing  they  have  cemented  the 
closest  business  relations  with  valuable  customers,  without 
incurring  serious  risks  or  losses.  Interest  is  charged  on  the 
extension  of  time  thus  granted. 

Foreign  Credit  Department. — Just  as  a  credit  department 
is  found  to  be  essential  in  every  large  mercantile  business 
engaged  in  domestic  trade,  so  does  foreign  trade  necessi- 
tate the  placing  of  this  important  phase  of  the  business  in 
trained  and  competent  hands.  To  accept  the  rec- 
ommendation of  salesmen,  anxious  to  increase  the  volume 
of  their  sales,  as  to  the  responsibility  of  foreign  customers, 
when  the  recommendation  of  just  as  capable  and  trust- 
worthy salesmen  in  regard  to  the  extension  of  credit  to 
customers  at  home  would  have  very  little  \veight,  is  a 
policy  that  is  unsound.  Manufacturers  having  salesmen 
in  foreign  markets  expect  them  to  carefully  investigate 
and  report  on  the  financial  standing  and  responsibility 
of  prospective  customers,  but  these  reports  are  not  in  them- 
selves sufficient.  The  credit  department  is  constantly  on 
the  alert  securing  all  of  the  credit  information  possible, 
using  to  this  end  every  available  means. 

There  are  four  distinct  phases  of  the  foreign  credit  man's 
work.  He  must  know,  first,  how  to  assemble  credit  in- 
formation in  regard  to  foreign  customers;  second,  how  to 
safeguard  foreign  accounts,  once  they  are  opened;  third, 
how  to  keep  in  touch  with  his  customer  so  as  to  ascertain 
the  changes  that  may  occur  in  his  business  standing;  fourth, 
how  to  make  collections  abroad.  Even  in  firms  where 
there  is  no  credit  man  who  has  charge  of  this  branch  of  the 
business,  there  is  some  one  who  attends  to  this  important 


THE   EXTENSION  OF   CREDIT  191 

work,  and  the  good  judgment  and  thoroughness  here  dis- 
played are  an  important  factor  in  the  success  of  the  foreign 
trade  developed  by  the  firm.  Each  of  the  four  di\dsions  of 
the  work  of  the  credit  department  will  now  be  considered 
in  some  detail. 

How  to  Assemble  Credit  Information.— Before  extend- 
ing credit  to  foreign  customers  a  thorough  investigation 
as  to  their  financial  responsibility  and  business  standing 
is  necessary,  just  as  in  domestic  business.  Questions  to 
be  determined  before  the  extension  of  credit  include  the 
nature  and  extent  of  the  customer's  business,  his  financial 
worth,  business  standing,  reputation  in  the  community, 
and  the  way  in  which  he  has  met  his  obligations  in  the 

past. 

In  domestic  trade  the  first  method  taken  to  ascertain 
the  facts  required  about  a  customer  is  to  ask  him  to  make 
out  and  forward  a  detailed  statement  as  to  his  assets, 
liabiHties,  net  worth,  the  volume  of  his  business,  the  amount 
of  money  he  has  in  the  bank,  etc.  This  method  is  not 
familiar  to  all  merchants  in  foreign  countries,  and  unless 
they  are  approached  with  the  utmost  tact  they  take  offense 
and  break  off  all  business  relations  \nth  the  firm  asking 
for  the  statement.  Pointed  questions  as  to  assets  and  Ha- 
bihties,  which  are  answered  as  a  matter  of  course  by  Ameri- 
can merchants,  are  particularly  objected  to  by  many  for- 
eign business  men  in  good  standing. 

A  custom  followed  by  some  successful  credit  men  is  to 
preface  the  request  for  credit  information  with  a  statement 
of  the  same  character  as  to  the  financial  standing  and 
responsibility  of  the  American  firm  sending  out  the  request. 
The  explanation  is  given  that  since  the  opening  of  a  credit 
account  is  anticipated,  it  will  be  mutually  advantageous 
for  each  party  to  the  transaction  to  know  something  about 
the  rehability  and  business  standing  of  the  other.  The 
customer  needs  to  know  that  the  firm  with  which  he  is 
dealing  is  a  responsible  one;    otherwise,  it  would  be  ill- 


192     FOREIGN  TRADE   OF  UNITED   STATES 

advised  for  him  to  accept  a  draft  before  examining  the  con- 
tents of  the  shipment.  The  exporter  must  be  assured  that 
his  customer  is  a  business  man  accustomed  to  fulfilling  his 
obligations;  otherwise,  the  sale  of  goods  on  credit  terms  en- 
tails too  great  a  risk  to  be  undertaken.  Some  of  the  most 
successful  credit  men  in  America  report  that  they  seldom 
fail  to  receive  satisfactory  and  courteous  replies  to  such 
requests  for  credit  information,  which  are  invariably  ex- 
pressed in  such  polite  phrases  that  exception  can  hardly 
be  taken  to  them.  While  answers  may  not  be  given  to  a 
long  list  of  specific  questions,  other  valuable  information 
is  given,  including  the  names  of  American  firms  and  local 
or  American  banks  with  whom  they  have  transacted  busi- 
ness. 

Another  method  of  obtaining  foreign  credit  information 
is  through  application  to  a  bank  or  banks  doing  business 
in  the  customer's  home  market.  Such  inquiries  may  be 
sent  direct  to  the  foreign  bank  or  may  be  made  through  an 
American  bank.  American  branch  banks  located  in  for- 
eign markets  give  much  attention  to  the  gathering  of  credit 
information  for  the  benefit  of  clients  of  the  home  bank. 
They  will  usually  furnish  any  information  which  they  have 
in  regard  to  a  foreign  firm's  credit  standing  w^hen  the  rea- 
son for  desiring  the  information  is  specifically  stated.  The 
branch  banks  of  the  National  City  Bank  of  New  York, 
of  the  Guaranty  Trust  Company,  the  Mercantile  Bank  of 
the  Americas,  the  Irving  Trust  Company,  and  of  other 
banking  corporations,  are  spending  much  time  and  effort 
in  gathering  reliable  credit  information  about  the  business 
firms  of  the  various  centres  in  which  the  banks  are 
located.  This  information  is  furnished  free  of  charge  to 
any  established  American  firm  which  makes  a  specific 
inquiry. 

The  exchanging  of  credit  information  among  American 
manufacturers  is  becoming  common.  Hence,  the  credit 
man  has  no  hesitancy  in  applying  to  any  American  firm 


THE  EXTENSION  OF   CREDIT  193 

given  as  a  reference  as  to  the  business  standing  of  a  foreign 
customer.  Often  valuable  information  as  to  the  business 
methods  of  a  prospective  customer  as  weU  as  to  liis  financial 
standing  is  thus  obtained.  The  free  interchange  of  such 
information  is  bound  to  be  of  advantage  to  American  manu- 
facturers. 

Foreign  banks  also  answer  inquiries  as  to  the  business 
standing  of  local  firms,  though  the  information  thus  ob- 
tained is  often  meagre  and  cannot  always  be  implicitly  de- 
pended upon.  No  bank  is  anxious  to  impeach  the  standing 
of  its  clients.  Neither  is  a  bank  expected  to  answer  ques- 
tions propounded  by  strangers  with  as  much  fulness  as  it 
gives  to  the  inquiries  of  its  own  customers.  There  has 
been  a  decided  tendency  on  the  part  of  some  foreign  banks 
to  withhold  credit  information  from  manufacturers  with 
whom  they  have  no  business  relations  or  sympathies, 
especially  if  they  belong  to  a  nation  that  is  trying  to  break 
in  on  the  trade  of  countries  with  which  the  banks  are 
affiliated. 

The  mercantile  agencies  afford  a  reliable  means  of  obtain- 
ing credit  information.  There  are  two  such  agencies  in 
the  United  States  having  numerous  branches  in  the  foreign 
field.  These  are  the  agencies  conducted  by  R.  G.  Dun  and 
Company  and  Brads treet.  They  maintain  branches  in  all 
of  the  large  trade  centres  and  have  reporters  and  corre- 
spondents in  practically  every  market.  They  can  usually 
furnish,  on  short  notice,  valuable  data  as  to  the  credit 
rating  of  any  foreign  firm.  If  they  have  not  this  data 
on  file,  they  w^ill  procure  it  upon  request.  Their  charges 
for  furnishing  credit  information  are  reasonable. 

The  National  Association  of  Manufacturers,  which  main- 
tains headquarters  at  New  York  City,  has  been  for  years 
assembhng  credit  information  about  foreign  business  houses. 
For  this  purpose  the  association  has  over  1,800  correspon- 
dents located  in  various  markets  in  all  quarters  of  the  globe. 
These  correspondents  furnish  valuable  information  as  to 


194    FOREIGN  TRADE   OF   UNITED   STATES 

the  business  rating  and  financial  standing  of  merchants  and 
firms  in  the  foreign  field.  Membership  in  the  association 
carries  with  it  the  right  to  a  limited  number  of  credit  re- 
ports, and  for  a  small  additional  fee  other  reports  are 
furnished. 

The  Philadelphia  Commercial  Museum  maintains  a 
credit  information  bureau  for  the  benefit  of  its  members. 
It  assembles  this  information  in  practically  the  same  way 
as  does  the  National  Association  of  Manufacturers.  The 
services  which  the  museum  is  prepared  to  render  its  mem- 
bers are  so  varied  and  so  valuable  that  membership  in  it 
is  sought  by  practically  all  large  manufacturers.  Among 
these  services  may  be  mentioned  the  translation,  for  a 
nominal  fee,  of  foreign  correspondence,  the  preparation  of 
reports  on  business  conditions  and  business  opportunities 
in  any  foreign  market  which  the  member  may  be  inter- 
ested in,  the  supplying  of  specific  information  as  to  customs 
regulations,  or  other  laws  affecting  commerce,  and  the  col- 
lection of  deHnquent  accounts  in  foreign  countries.  The 
fees  charged  in  each  instance  are  reasonable. 

The  American  Manufacturers  Export  Association  fur- 
nishes credit  information  to  its  members.  It  also  assists 
members  in  many  other  ways  in  developing  and  carrying 
on  a  profitable  export  trade.  Headquarters  are  located 
in  the  Manhattan  Life  Building,  New  York  City. 

The  various  chambers  of  commerce,  manufacturers  as- 
sociations, and  credit  men's  organizations  are  prepared  to 
give  some  assistance  in  the  matter  of  collecting  foreign 
credit  information,  and  the  capable  and  alert  credit  man 
is  careful  to  keep  in  touch  with  all  such  organizations. 

From  the  brief  review  just  given  of  the  various  channels 
through  which  credit  information  in  regard  to  foreign  cus- 
tomers may  be  secured,  it  is  evident  that  the  obtaining  of 
such  information  is  not  so  difficult  as  might  appear  at  first 
thought.  Hence,  the  manufacturer  who  hesitates  in  re- 
gard to  extending  credit  to  foreign  customers  on  the  grounds 


THE  EXTENSION  OF   CREDIT  195 

that  it  is  difficult  or  impossible  to  obtain  reliable  credit 
data  needs  the  assistance  of  an  expert  along  that  line. 

How  to  Safeguard  Foreign  Accounts. ^The  first  way  in 
which  the  credit  man  safeguards  his  foreign  accounts  is  by 
making  every  effort  to  secure  reliable  and  complete  credit 
information  in  regard  to  every  foreign  customer.  This 
enables  him  to  determine  to  just  what  extent  credit  may 
be  extended  to  each  customer.  Unless  the  reports  relative 
to  a  customer's  credit  standing  are  practically  uniform  in 
stating  the  risk  to  be  a  good  one,  the  credit  man  will  insist 
upon  business  being  transacted  on  a  cash  basis. 

The  credit  man  can  further  safeguard  his  foreign  ac- 
counts by  using  his  influence  in  making  the  policy  of  the 
firm  one  that  invariably  requires  that  every  foreign  order 
be  filled,  packed,  and  shipped  exactly  as  directed.  By  so 
doing  the  number  of  legitimate  claims  for  substitution, 
shortages,  or  damages  sustained  in  transit  resulting  from 
improper  packing  are  reduced  to  the  minimum  or  entirely 
ehminated. 

Co-operation  between  the  credit  department  and  the 
other  departments  also  has  the  effect  of  insuring  that  exact 
attention  to  every  detail,  in  making  out  shipping  and  other 
documents,  which  is  so  important  a  factor  in  every  foreign 
shipment.  The  proper  making  out  of  every  invoice,  bill, 
statement,  biU  of  lading,  draft,  etc.,  is  an  important  ele- 
ment in  safeguarding  a  foreign  account,  for  delays,  misun- 
derstandings, and  dissatisfaction  are  thus  avoided  and  no 
excuse  given  the  consignee  to  delay  payment  while  com- 
plaints are  adjusted. 

There  are  certain  legal  requirements  in  regard  to  drafts 
that  the  vigilant  credit  man  must  know.  In  most  Latin 
American  countries  the  words  ''Value  received"  or  ''Value 
on  account"  are  required;  these  words  are  added  when  the 
draft  is  indorsed,  as  well  as  the  place  and  date  of  indorse- 
ment. In  nearly  all  countries  a  draft  must  be-  noted  and 
protested  in  case  it  is  dishonored  by  the  non-acceptance  or 


196    FOREIGN  TRADE   OF   UNITED   STATES 

non-payment  of  the  drawee.  Otherwise  it  loses  its  status 
as  a  promise  to  pay  and  becomes,  provided  it  has  been 
accepted,  a  mere  evidence  of  indebtedness. 

The  first  step  in  protesting  is  called  noting.  It  is  done 
by  a  notary,  who,  when  a  draft  is  dishonored,  notes  the  fact 
on  the  back  as  the  grounds  of  a  protest.  A  protest  is  a 
formal  declaration  made  by  a  notary  public,  at  the  request 
of  the  holder  of  a  draft,  for  non-acceptance  or  non-pay- 
ment of  the  same,  protesting  against  the  drawer  and  others 
concerned  for  the  exchange,  charges,  damages,  and  interest. 
In  most  European  countries,  after  protest  for  non-accep- 
tance, the  holder  is  required  to  present  the  draft  again  at 
maturity,  and  if  it  is  not  paid  he  must  protest  for  such  non- 
payment. In  most  countries  the  protest  for  non-payment 
of  a  draft  must  be  made  on  the  day  it  is  due,  though  in 
France  one  day  of  grace  is  granted  and  in  Germany  two 
days  are  allowed.  Not  all  banks  taking  drafts  for  collec- 
tion will  protest  in  case  of  non-acceptance  or  non-payment 
unless  they  are  so  instructed  when  the  draft  is  sent  to  them. 
Hence,  such  instructions  should  accompany  every  draft 
forwarded  through  a  bank. 

A  safeguard  used  in  drawing  a  draft  is  the  insertion  in  it 
of  the  name  of  a  person,  firm,  or  bank  to  whom  the  holder 
may  refer  in  case  the  draft  is  dishonored.  The  name  so 
inserted  is  preceded  by  the  words  "In  case  of  need,"  or 
"In  case  of  need  notify."  The  person  so  specified  is  author- 
ized to  either  take  up  the  draft  (by  paying  it)  or  to  use  his 
good  offices  to  induce  the  drawee  to  honor  it.  He  is  often 
called  "the  referee  in  case  of  need." 

How  to  Keep  in  Touch  with  Foreign  Risks.— The  neces- 
sity of  keeping  in  close  touch  with  every  foreign  customer 
to  whom  credit  has  been  extended  is  apparent.  Even 
though  the  firm  may  be  one  of  the  highest  financial  stand- 
ing and  the  credit  may  have  been  granted  only  after  a 
thorough  investigation,  changed  conditions  may  at  any 
time  seriously  affect  the  credit  standing  of  a  foreign  as 


THE  EXTENSION  OF   CREDIT  197 

well  as  of  a  domestic  firm.  Successful  credit  men  confirm 
the  credit  reports  they  have  on  file  at  least  once  a  year. 
They  also  make  use  of  any  new  avenues  of  information 
which  may  be  brought  to  their  attention.  A  close  scanning 
of  the  various  trade  bulletins  and  trade  papers  often  re- 
sults in  the  acquisition  of  valuable  information  in  regard 
to  business  conditions  in  foreign  markets  which  materially 
affects  the  credit  status  of  the  firms  located  in  those  mar- 
kets. In  case  of  panics,  unfavorable  conditions  in  regard 
to  exchange,  business  depressions,  and  similar  conditions, 
the  credit  man  must  guard  his  accounts  in  those  countries 
with  especial  care  and  be  prepared  to  act  promptly  in  case 
of  emergency. 

The  Collection  of  Foreign  Accounts. — Even  when  the 
greatest  care  is  exercised  in  the  extension  of  credit  it  oc- 
casionally happens  that  foreign  customers  become  delin- 
quent in  making  payment.  The  first  thing  for  the  credit 
department  to  ascertain  is  the  reason  for  this  delay.  It 
may  be  dissatisfaction  with  the  goods  and  the  consequent 
demand  for  discounts  or  deductions,  or  it  may  be  the  in- 
ability of  the  customer  to  meet  his  obhgations  when  due. 

If  payment  is  not  made  because  of  dissatisfaction  on  the 
part  of  the  customer,  the  wise  credit  man  makes  every 
eft'ort  to  come  to  some  amicable  settlement.  In  every  case 
where  a  claim  is  made  for  shortages,  for  damages  incurred 
during  transit  due  to  poor  packing,  or  for  other  allowances, 
the  most  careful  attention  must  be  given  to  the  complaint. 
If  it  seems  at  all  probable  that  the  claim  is  well  founded, 
fair  and  even  generous  allowances  are  ad\dsable.  In  de- 
ciding as  to  the  justice  of  the  claim,  the  reputation  of  the 
customer,  his  record  in  dealing  with  other  firms,  and  his 
standing  in  business  circles  have  great  weight.  As  a  rule, 
when  a  reputable  foreign  firm  of  excellent  business  standing 
makes  a  claim  there  is  good  reason  for  it.  If  claims  are 
to  be  allowed,  this  should  be  done  promptly.  Protracted 
correspondence  and  objections,  with  the  final  and  seemingly 


1 98    FOREIGN  TRADE   OF   UNITED   STATES 

unwilling  capitulation  of  the  creditor,  only  result  in  the 
loss  of  prestige  and  the  loss  of  business.  On  the  other 
hand,  readiness  to  admit  and  rectify  mistakes  often  re- 
sults in  the  obtaining  of  new  and  important  business. 
All  correspondence  with  foreign  debtors  should  be  con- 
ducted with  tact  and  politeness;  a  brusque  or  too  direct 
statement  may  be  deeply  resented  by  a  Latin  American  or 
other  foreign  customer,  even  though  no  offense  was  in- 
tended.    Courtesy  is  a  valuable  business  asset. 

While  the  policy  of  adjusting  claims  made  by  foreign 
customers  in  a  spirit  of  fairness  and  even  of  generosity 
is  generally  advisable,  there  are,  nevertheless,  instances 
wherein  the  foreign  customer  makes  unwarranted  and  un- 
founded complaints  and  claims.  These  probably  occur  no 
oftener  in  foreign  than  in  domestic  business.  When  a 
claim  is  patently  unwarranted,  a  full  explanation  of  the 
facts,  coupled  with  a  firm  though  politely  couched  refusal 
to  allow  the  claim,  is  necessary.  If  pa>Taent  is  still  with- 
held, the  mediation  of  a  bank  or  other  agency  is  sometimes 
sought  with  good  results.  If  all  efforts  for  amicable  ad- 
justment fail,  the  services  of  a  lawyer  may  be  necessary. 
Only  such  foreign  lawyers  as  have  been  recommended  by 
a  bank  or  mercantile  agency  are  retained.  Whenever 
possible,  Htigation  is  avoided,  as  a  non-resident  trying  to 
collect  a  debt  in  a  foreign  court  labors  under  certain  dis- 
abiHties  and  disadvantages  which  need  not  be  enumerated 
here. 

When  correspondence  and  the  mediation  of  a  bank  or 
other  third  party  alike  fail  to  secure  the  payment  of  a 
foreign  account,  it  is  generally  turned  over  to  the  collection 
department  of  one  of  the  agencies  mentioned  in  connec- 
tion with  the  assembling  of  credit  information.  The  Na- 
tional Association  of  Manufacturers  has  an  especially  well- 
organized  collection  department  conducted  for  the  benefit 
of  its  members.  The  mercantile  agencies  have  collection 
departments   which   handle   foreign   accounts.     American 


THE   EXTENSION  OF   CREDIT  199 

banks  having  branches  in  the  foreign  market  will  usually 
give  assistance  in  trying  to  force  collection  of  a  draft,  and 
where  litigation  is  necessary  such  banks  will  engage  a 
reputable  lawyer  for  the  American  manufacturer. 

BIBLIOGRAPHY 

Bartlett,  Dudley.  Facilities  Necessary  for  Safe  Clearance  of  For- 
eign Credit  Risks.  In  Official  Report  of  the  Fifth  National 
Foreign  Trade  Convention.     1918,  pp.  403-422. 

Gonzales,  V.  Credit  and  the  Future  of  American  Foreign  Trade. 
In  Proceedings  of  the  International  Trade  Congress.     New 

York,  191 5. 

Matthews,  James.  Credit  Conditions  in  South  American  Coun- 
tries. In  Journal  of  Accountancy,  vol.  22,  pp.  443-450.  De- 
cember, 1916. 

Tarlton,  W.  E.  What  Part  Credit  May  or  Should  Play  in  the 
Development  of  Our  Foreign  Trade.  In  Official  Report  of  the 
Fifth  National  Foreign  Trade  Convention,  191 8,  pp.  390-403- 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Banking 
and  Credit  in  Argentina,  Brazil,  Chile,  and  Peru.  Washing- 
ton, 1914.     (Special  agent  series  no.  90.) 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Foreign 
Credits.  A  study  of  the  foreign  credit  problem  with  a  review  of 
European  methods  of  financing  export  shipments,  by  Archibald 
J.  Wolfe.     Washington,  1913.     (Special  agent  series  no.  62.) 

Von  Seebeck,  Georg.  Credits  Against  Imports  and  Exports. 
In  Proceedings  of  the  International  Trade  Conference.  New 
York,  191 5. 

Zimmerman,  T.  J.  Credits  and  Collections  ;  the  Work  and  Scope 
of  the  Credit  Department  .  .  .  Foreign  Credits.     Chicago,  1907. 


CHAPTER  XVI 

FINANCING  EXPORT  SHIPMENTS 

Handicaps  to  Our  Export  Trade. — Superiority  of  prod- 
ucts, indomitable  energy,  and  unflagging  enterprise,  com- 
bined with  a  great  wealth  of  natural  resources,  have  made 
the  United  States  a  leader  among  the  nations  of  the  earth 
in  international  trade.  In  competition  with  the  exporters 
of  other  nations,  our  manufacturers  and  exporters  have 
been  handicapped  in  more  than  one  respect.  An  inade- 
quate merchant  marine  and  banking  facilities  for  the  ex- 
tension of  foreign  trade  far  inferior  to  those  possessed  by 
the  other  great  commercial  nations  have  been  two  handi- 
caps to  our  foreign  trade  development.  Until  recently  the 
facilities  for  financing  exports  have  been  entirely  inade- 
quate, and  in  no  way  comparable  with  those  at  the  service 
of  the  English  and  German  exporter.  The  comparatively 
long-term  credits  demanded  in  many  markets  make  it 
essential  for  the  manufacturer  to  have  banking  facilities 
that  enable  him  to  realize  on  his  shipments  before  the  cus- 
tomer pays  for  them. 

In  the  words  of  an  officer  of  the  Guaranty  Trust  Company 
of  New  York:  "The  basis  for  the  successful  commercial 
attainments  of  England  and  Germany  is  to  be  found  in  the 
underlying  system  of  credits  granted  by  bankers  to  im- 
porting and  exporting  houses.  Similar  and  just  as  effec- 
tive results  may  be  obtained  for  Americans  by  combined 
efforts  along  the  same  lines." 

Banking  Facilities  Needed. — The  first  consideration  of 
the  average  manufacturer  or  exporter  in  developing  trade 
with  other  countries  is  the  willingness  and  ability  of  the 

200 


FINANCING  EXPORT  SHIPMENTS        201 

domestic  banks  to  discount  or  buy  commercial  paper  based 
on  legitimate  business  transactions  with  other  nations. 
Only  when  a  manufacturer  can  depend  upon  being  able  to 
sell  his  drafts  on  his  foreign  customers  to  an  American 
bank,  preferably  to  the  one  he  does  business  with,  is  he 
able  to  extend  the  credit  necessary  to  the  successful  carry- 
ing on  of  an  extensive  and  profitable  foreign  trade.  Of 
course  there  are  exceptions  to  this  in  the  case  of  very 
large  and  prosperous  manufacturers,  but  the  number  of 
such  concerns  is  comparatively  few. 

While  the  direct  financing  of  foreign  shipments  by  buy- 
ing or  discounting  the  drafts  drawn  against  such  shipments 
is  the  primary  banking  facility  demanded  by  those  engaged 
in  foreign  trade,  there  are  other  ways  in  which  banks  have 
a  direct  and  highly  important  part  in  trade  development. 
These  include  the  assembling  of  rehable  credit  information 
in  regard  to  foreign  merchants  and  importers  and  the 
furnishing  of  such  information  to  American  exporters  upon 
request,  the  guarding  of  our  exporters  against  losses  through 
fluctuations  in  exchange,  and  the  arranging,  either  through 
correspondent  or  branch  banks  located  in  foreign  countries, 
for  the  collection  of  payment  for  the  goods  when  such  pay- 
ment is  due.  In  case  the  shipment  is  not  accepted  by  the 
importer,  the  exporter  must  depend  largely  upon  the  corre- 
spondent or  branch  bank  to  make  the  best  arrangements 
possible  for  the  disposal  of  the  goods  to  the  best  advantage. 

Benjamin  Joy,  Vice-President  National  Shawmiut  Bank 
of  Boston,  says  in  regard  to  the  functions  of  banks  in  fur- 
thering export  trade:  "The  exporter  must  take  the  selHng 
risk  and  the  bank  must  take  the  financial  risk.  The  bank's 
responsibihty  is  the  collection  of  up-to-date  and  accurate 
information,  the  offering  of  proper  faciUties  for  financing 
the  merchant  in  the  most  economical  way,  and  for  the 
proper  handling  of  the  shipment  at  the  other  end  and  the 
collection  of  the  amount  involved  when  due.'' 

The  Federal  Reserve  Act  of  191 5  made  it  possible  for 


202     FOREIGN   TRADE   OF   UNITED   STATES 

American  banks  to  extend  the  needed  facilities  for  the 
development  of  foreign  trade,  and  the  leading  banks  are 
taking  advantage  of  this  and  showing  a  disposition  to  ex- 
tend to  the  exporter  the  facilities  thus  made  possible.  A 
brief  consideration  of  the  provisions  of  the  Federal  Reserve 
Act  directly  relating  to  foreign  trade  is  necessary. 

Effect  of  the  Federal  Reserve  Act. — There  are  three 
provisions  of  the  Federal  Reserve  Act  of  the  greatest  im- 
portance to  all  engaged  in  foreign  trade.  The  first  is  the 
provision  authorizing  the  various  Federal  Reserve  Banks 
to  rediscount  "notes,  drafts,  or  bills  of  exchange  arising 
out  of  commercial  transactions;  that  is,  notes,  drafts,  and 
bills  of  exchange  issued  or  drawn  for  agricultural,  industrial, 
or  commercial  purposes,  of  which  the  proceeds  have  been 
used  or  are  to  be  used  for  such  purposes. ''  The  second  is 
the  provision  authorizing  any  member  bank  to  accept 
"drafts  or  bills  of  exchange  drawn  upon  it  and  growing  out 
of  transactions  involving  the  importation  or  exportation  of 
goods  having  not  more  than  six  months  sight  to  run.'^  It 
is  further  provided  in  this  connection  that  such  acceptances 
may  be  rediscounted  at  any  Federal  Reserve  Bank  when 
they  have  a  maturity  at  time  of  rediscount  of  not  more 
than  three  months.  The  third  provision  having  direct  bear- 
ing on  our  foreign  trade  is  the  one  authorizing  American 
banks  having  a  capital  and  surplus  of  $1,000,000  to  estab- 
lish branch  banks  in  foreign  countries. 

The  fiirst  provision  referred  to  makes  the  discounting  or 
buying  of  bills  of  exchange  based  on  commercial  transac- 
tions especially  desirable  for  banks,  for  it  provides  a  ready 
market  for  the  rediscount  of  such  paper.  The  second  pro- 
vision permitting  bankers^  acceptances  affords  a  convenient 
means  of  financing  export  shipments  that  was  hitherto  for- 
bidden by  law,  although  it  is  a  method  long  used  in  England 
and  other  countries.  It  will  be  more  fully  discussed  later. 
The  permission  to  establish  branch  banks  in  foreign  coun- 
tries is  looked  upon  as  of  the  greatest  importance.    A 


FINANCING  EXPORT  SHIPMENTS         203 

promising  beginning  in  that  field  has  been  made  in  Latin 
America,  where  the  National  City  Bank  of  New  York  made 
the  initial  step  in  November,  1914,  by  establishing  a  branch 
bank  in  Buenos  Aires,  Argentina.  This  was  followed  by 
the  establishment  of  other  branches  from  time  to  time  in 
Latin  American  and  other  countries.  The  International 
Banking  Corporation  has  established  branches  in  India, 
China,  Japan,  and  elsewhere.  The  Mercantile  Bank  of 
America,  the  Asia  Banking  Corporation,  and  the  Guaranty 
Trust  Company  of  New  York  were  early  in  the  field  with 
branch  banks  in  important  trade  centres.  Other  banks 
are  rapidly  taking  up  the  work,  so  that  the  banking  facili- 
ties offered  the  American  exporter  are  fast  becoming  the 
equal  of  those  offered  by  the  other  leading  commercial 
nations. 

Methods  of  Financing  Exports. — Drafts  used  in  connec- 
tion with  the  financing  of  exports  are  of  two  classes:  first, 
those  drawn  on  banks  or  bankers;  second,  those  drawn  on 
individuals,  usually  upon  foreign  customers. 

Those  of  the  first  class  are  referred  to  as  bankers'  accep- 
tance or  acceptances.  In  accepting  such  drafts  banks  are 
extending  credit  either  to  the  American  exporter,  or  to  the 
foreign  importer,  who  arranges  for  such  acceptance  through 
his  local  bank. 

Those  drafts  drawn  on  individuals  are  usually  docu- 
mentary drafts,  i.  e.,  they  are  attached  to  the  bills  of  lad- 
ing, insurance  certificate,  and  other  documents  required  in 
making  export  shipments.  Bankers'  acceptances  and  docu- 
mentary drafts  are  quite  distinct,  and  their  use  must  be 
carefully  distinguished. 

Bankers'  Acceptances. — Since  the  passage  of  the  Federal 
Reserve  Act  the  use  of  bankers'  acceptances  as  a  means  of 
financing  export  shipments  has  become  usual.  The  ex- 
porter draws  a  sight  draft  (usually  for  sLxty  or  ninety  days) 
on  the  bank  for  the  amount  of  the  shipment.  When  this 
draft  is  accepted  by  the  bank  it  is  discounted  by  the  ship- 


204    FOREIGN  TRADE   OF  UNITED   STATES 

per,  eitlier  at  the  bank  upon  which  it  is  drawn  or  elsewhere. 
He  is  thereby  enabled  to  realize  on  his  shipment  before  it 
leaves  the  United  States.  The  bank  charges  a  commission 
for  its  acceptance.  A  feature  of  this  plan  is  that  returns 
from  the  shipment,  which  is  sold  under  the  usual  docu- 
mentary-draft arrangement,  are  received  by  the  shipper 
by  the  time  he  is  required  to  take  up  his  draft  on  the  bank. 
If  there  is  delay,  the  bank  will  ordinarily  renew  its  accep- 
tance for  a  reasonable  period. 

Bank  acceptances  have  been  the  standard  credit  instru- 
ment in  Great  Britain  and  other  countries  for  years.  By 
their  use  the  element  of  risk  is  eliminated,  so  far  as  the 
purchaser  of  the  draft  is  concerned.  They  command  the 
best  discount  rates  in  the  market;  in  fixing  the  discount 
rate,  only  the  interest  on  the  money  paid  for  the  bill  until 
its  maturity  is  considered.  It  is  thus  seen  that  the  accep- 
tance of  a  draft  by  a  bank  of  repute  makes  such  a  draft, 
known  as  an  acceptance,  easily  marketable.  The  accep- 
tance brings  the  banker  an  interest  return  and  m.akes  the 
conversion  of  the  draft  into  money  by  the  exporter  an  easy 
matter.  Since  a  draft  drawn  by  an  exporter  against  a 
foreign  shipment  is  made  large  enough  to  cover  the  dis- 
count and  other  expenses,  the  exporter  can  extend  the 
usual  sixty  or  ninety  days  credit  to  his  foreign  customer 
without  losing  a  day's  interest  on  the  amount  of  the  bill. 
When  he  discounts  the  bill  of  exchange  he  receives  the  full 
amount  of  the  invoice  plus  the  cost  of  shipping,  insurance, 
etc. 

While  the  importer  has  these  charges  to  pay,  he  is,  never- 
theless, buying  under  favorable  conditions,  for  he  is  not 
required  to  pay  the  bill  until  maturity.  He  thus  has  the 
goods  in  his  possession  before  he  has  paid  for  them,  and 
may  dispose  of  them  before  the  time  of  payment  is  at  hand. 

The  advantage  to  the  bank  which  accepts  a  draft  is  thus 
expressed  by  John  Clausen,  vice-president  of  the  Chemical 
National  Bank  of  New  York: 


FINANCING  EXPORT  SHIPMENTS         205 

The  power  of  a  bank  to  accept  a  draft  or  bill  of  exchange  enables 
it  to  make  use  of  and  to  sell  for  a  consideration  its  credit,  and  so 
lend,  for  legitimate  use  in  trade,  vast  sums  without  depleting  its 
reserve  or  impairing  its  capability  in  making  additional  loans  and 
advances  to  its  clients. 

Bank  acceptances  based  on  credit  established  by  the 
foreign  customer  through  his  local  bank  are  also  used  to 
a  limited  extent.  In  this  case,  the  foreign  customer  ar- 
ranges with  his  local  bank  to  request  its  American  corre- 
spondent bank  to  accept  for  its  account  a  documentary 
draft  drawn  by  the  exporter.  At  the  time  agreed  upon  for 
the  payment  of  the  goods  the  American  bank  looks  to  its 
foreign  correspondent  for  cover.  The  draft  drawn  by  the 
exporter  on  the  American  bank  is  usually  discounted  by 
the  bank  accepting  it.  Thus,  the  exporter  has  his  money 
for  the  shipment  and  the  foreign  buyer  has  the  advantage 
of  a  term  of  credit.  He  pays  his  local  bank  a  commission 
for  arranging  the  acceptance.  A  foreign  firm  of  the  high- 
est standing  may  be  able  to  arrange  directly  \^dth  an  Ameri- 
can bank  for  its  acceptance  of  the  draft  drawn  by  the  ex- 
porter, though  the  acceptance  is  usually  arranged  through 
the  buyer's  local  bank. 

Discounting  Documentary  Drafts. — As  the  usual  method 
of  extending  credit  to  a  foreign  importer  is  by  means  of 
the  documentary  draft,  drawn  on  the  foreign  customer, 
payable  either  upon  the  delivery  of  the  goods  or  at  a  later 
date,  so  the  common  method  of  financing  export  shipments 
is  for  the  exporter  to  dispose  of  the  documentary  draft 
drawn  on  his  foreign  customer  either  to  a  bank  or  to  a 
broker.  Such  drafts  are  said  to  be  sold  or  discounted, 
the  words  being  used  interchangeably.  Clean  drafts  are 
disposed  of  in  the  same  way.  The  bank  or  broker  has  re- 
course to  the  drawer  of  the  draft  in  both  cases,  that  is,  the 
drawer  of  the  draft  is  responsible  for  its  payment.  In 
case  of  a  documentary  bill  of  exchange,  which  is  another 
name  for  a  documentary  draft,  the  bank  or  broker  retains 


2o6    FOREIGN   TRADE   OF   UNITED    STATES 

a  lien  on  the  goods  until  the  draft  is  satisfied.  The  usual 
period  for  which  such  drafts  are  drawn  is  either  for  sixty  or 
for  ninety  days  after  sight. 

The  documentary  bill  of  exchange  consists,  as  explained 
in  the  chapter  devoted  to  The  Extension  of  Credit,  of  the 
draft,  the  bill  of  lading,  the  insurance  certificate,  and  the 
invoice.  Each  of  these  documents  is  issued  in  duplicate, 
in  case  one  set  may  be  lost.  They  are  plainly  marked 
'' original "  and  ** duplicate."  Instead  of  marking  one  draft 
original  and  the  other  duplicate,  the  words  ''first  of  ex- 
change" and  "second  of  exchange"  are  often  used.  The 
set  of  original  documents  is  sent  by  the  steamer  in  which  the 
merchandise  is  shipped  or  by  a  faster  one;  the  duplicate 
set  is  sent  by  the  next  steamer. 

For  many  years  the  custom  has  prevailed  of  drawing 
foreign  commercial  drafts  either  in  pounds  sterling  or  in 
the  money  of  the  country  to  which  the  goods  are  shipped. 
It  is  estimated  that  three-fourths  of  the  drafts  drawn  in 
international  trade  have  been  in  pounds  sterling.  The 
establishment  of  ''dollar  exchange"  is  desirable  for  many 
reasons,  and  a  well-organized  effort  to  bring  this  about  has 
produced  tangible  results,  especially  in  our  trade  with 
Latin  America.  This  subject  is  more  fully  discussed  in  the 
chapter  devoted  to  the  subject  of  Foreign  Exchange. 

When  a  foreign  commercial  bill  of  exchange  is  drawn  in 
sterling  or  other  foreign  currency,  the  expenses,  such  as 
commission  charged  by  the  bank  or  exchange  broker,  in- 
terest, postage,  and  other  incidental  expenses,  are  indirectly 
charged  to  the  drawee,  by  the  simple  method  of  fixing  the 
rate  of  exchange  so  as  to  include  these. 

In  case  the  draft  is  drawn  not  in  sterling  or  other  foreign 
money,  but  in  dollars,  the  total  of  these  charges  must  be 
added  to  the  cost  of  the  shipment.  When  this  course  is 
pursued,  a  direct  understanding  to  this  effect  is  necessary; 
otherwise,  the  drawee  may  refuse  to  pay  the  charges. 
Likewise,  objections  may  be  made  to  including  these  in- 


FINANCING  EXPORT  SHIPMENTS         207 

cidental  expenses  in  the  amount  of  the  draft  when  it  is 
drawn  in  sterhng  or  other  foreign  money  unless  it  has  been 
agreed  upon  that  the  rate  of  exchange  prevaiUng  in  the 
American  market  on  the  day  of  shipment  is  to  be  the  rate 
by  which  the  conversion  from  dollars  is  to  be  made. 
Such  agreements  are  easily  made  in  advance  and  they  are 
important  because  they  avoid  misunderstandings,  dissatis- 
faction, and  loss  of  business. 

In  disposing  of  a  foreign  commercial  bill  of  exchange  to 
a  bank  or  in  forwarding  one  for  collection  through  a  bank 
it  is  necessary  to  give  definite  and  exact  instructions  in 
regard  to  the  deHvery  of  the  documents,  the  action  to  be 
taken  in  case  of  non-acceptance  or  non-payment  of  the 
draft,  and  of  the  disposition  to  be  made  of  the  shipment  if 
for  any  reason  it  is  not  taken  by  the  consignee.  Included 
in  the  instructions  are  the  exact  conditions  in  regard  to 
payment.  If  payment  is  to  be  made  upon  deHvery  of  the 
papers,  the  words  ''documents  for  payment"  are  used,  sig- 
nifying that  the  bill  of  lading  and  the  consequent  posses- 
sion of  the  goods  are  to  be  withheld  until  the  draft  is  to  be 
paid.  The  letters  d.  p.  are  used  to  express  this  condition. 
If  the  delivery  of  the  documents,  w^hich  gives  possession  of 
the  goods,  is  to  be  made  upon  acceptance  of  the  draft  by 
the  drawee,  the  words  ''documents  for  acceptance"  are 
used.  This  may  be  expressed  d.  a.  The  use  of  such  ab- 
breviations, however,  is  not  favored  by  careful  exporters. 
The  writing  out  clearly  and  definitely  of  all  instructions 
is  preferred,  as  by  so  doing  misunderstandings  are  often 
avoided. 

As  has  been  said,  a  bank  discounting  a  documentary 
draft  for  an  exporter  has  recourse  to  the  latter  in  case  the 
draft  is  not  satisfied  by  the  importer.  Thus,  the  financial 
responsibihty  of  the  drawer  of  a  draft  is  of  paramount 
importance,  though  the  nature  of  the  merchandise  and  the 
country  to  which  it  is  being  shipped  are  also  important 
considerations.     If  the  goods  are  of  a  perishable  nature  the 


2o8     FOREIGN  TRADE   OF   UNITED   STATES 

risk  is  greater;  likewise,  if  they  are  of  special  design  and 
are  not  of  staple  character  the  risk  is  increased,  for  the 
chances  of  disposing  of  them  to  advantage  in  case  the  con- 
signee does  not  accept  them  are  less  than  in  the  case  of 
standard  machinery  or  of  such  staple  products  as  wheat 
and  other  raw  materials.  The  reputation  of  the  drawee 
is  also  considered  by  the  bank  discounting  a  commercial 
bill  of  exchange,  but  this  is  of  much  less  importance  than 
that  of  the  drawer  of  the  draft,  to  whom  the  bank  looks  for 
reimbursement  in  case  the  draft  is  not  covered  at  maturity. 

Del  Credere  Guaranty. — The  negotiation  of  a  documen- 
tary draft  is  sometimes  facilitated  by  the  use  of  the  so- 
called  del  credere  guaranty.  This  is  a  guaranty  given  by 
a  foreign  bank  that  the  importer  will  pay  for  the  goods 
according  to  his  agreement.  The  guaranty  is  usually 
given  through  the  American  correspondent  of  the  foreign 
bank  giving  the  guaranty.  The  conditions  specified  vary 
according  to  the  agreement  entered  into  between  the  ex- 
porter and  his  customer;  this  may  provide  for  payment 
upon  the  arrival  of  the  goods  in  the  foreign  market  or  upon 
the  maturity  of  the  draft.  In  any  case,  though  it  does  not 
insure  immediate  payment  to  the  shipper,  it  makes  the  sell- 
ing of  the  draft  on  the  customer  thus  guaranteed  a  com- 
paratively easy  matter.  If  the  customer  fails  to  meet  his 
obligation,  the  shipper  has  recourse  to  the  bank  which  gave 
the  guaranty.  The  customer  pays  the  foreign  bank  a 
commission  for  making  this  guaranty. 

A  Typical  Transaction. — Since  the  discounting  of  docu- 
mentary drafts  is  the  commonest  method  used  in  financing 
export  shipments,  a  definite  understanding  of  the  entire 
transaction  is  of  the  utmost  importance.  This  will  be 
made  clearer  by  tracing  such  a  transaction  from  the  be- 
ginning to  the  end.  Let  us  say  that  the  firm  of  Wheeler 
&  Layton,  manufacturers  of  agricultural  machinery  in 
Illinois,  agrees  to  sell  to  Rodrigo  Martinez,  a  Brazilian  mer- 
chant, a  consignment  of  ploughs,  the  invoice  price  of  which 


FINANCING  EXPORT  SHIPMENTS         209 

is  Si, 000.  No  c.  i.  f.  quotation  is  made,  but  it  is  agreed 
that  Wheeler  &  Layton  are  to  pay  the  inland  and  ocean 
freight,  the  marine  insurance,  the  cartage  and  other  ship- 
ping expenses,  and  add  these  to  the  invoice  price  of  the 
ploughs.  It  is  also  agreed  that  payment  is  to  be  made  by 
means  of  a  ninety-day  documentary  draft,  drawn  in  dol- 
lars, and  that  the  expense  of  negotiating  this  draft  is  to 
be  borne  by  Rodrigo  Martinez. 

When  the  ploughs  are  ready  for  shipment,  they  are  sent 
by  rail  to  the  port  decided  upon,  which  we  will  say  is  New 
York  City.  The  freight  is  prepaid.  The  railroad  bill  of 
lading  and  the  invoice,  with  the  certificate  of  insurance,  if 
that  has  been  secured,  are  immediately  forwarded  to  the 
agent  of  Wheeler  &  Layton  at  New  York.  Both  the  bill 
of  lading  and  the  insurance  certificate  are  drawn  to  the 
order  of  Wheeler  &  Layton.  Their  agent  in  New  York 
is  either  given  a  power  of  attorney  which  gives  him  legal 
authority  to  indorse  them,  or  they  are  indorsed  in  blank 
before  they  are  forwarded  to  him. 

When  the  ploughs  arrive  in  New  York,  the  agent  attends 
to  all  the  details  of  shipment,  as  outHned  elsewhere,  and 
then  presents  the  draft  covering  the  full  amount  due 
Wheeler  &  Layton,  with  the  other  documents,  to  the  bank 
or  exchange-broker  \\dth  whom  he  has  arranged  to  negoti- 
ate the  bill  of  exchange. 

The  draft  is  drawn  in  dollars,  as  agreed;  it  is  drawn  on 
Rodrigo  Martinez,  and  reads  *' Ninety  days  after  sight  of 
this  first  of  exchange  (second  unpaid),  pay  to  the  order  of 
ourselves  $1,220.00,  value  received.'^  The  name  of  the 
steamship  on  which  the  ploughs  are  shipped  is  inserted, 
as  is  a  statement  indicating  the  nature  of  the  shipment. 
This  draft  is  signed  by  Wheeler  &  Layton.  It  was  either 
drawn  by  them  and  forwarded  to  their  agent  with  the  in- 
voice and  bill  of  lading,  or  it  was  drawn  later  on  telegraphic 
advice  of  the  exact  amount  of  the  expenses  to  be  included, 
indorsed  in  blank,  and  sent  by  registered  mail  to  the  agent 


2IO    FOREIGN  TRADE   OF   UNITED    STATES 

or  to  the  bank  discounting  it.  For  even  an  authorized 
agent  to  sign  any  of  the  documents  forming  part  of  a 
commercial  bill  of  exchange  is  not  good  practice,  and 
usually  makes  the  negotiation  of  such  a  bill  of  exchange 
difficult.  This  difficulty  is  overcome,  when  time  permits, 
by  the  agent  sending  all  of  the  documents  to  the  shippers 
for  their  signature.  It  is  more  satisfactorily  overcome  by 
Wheeler  &  Layton  securing  a  through  bill  of  lading  from 
the  railroad  company,  which  included  the  steamship  bill  of 
lading,  and  by  their  negotiating  the  bill  of  exchange  through 
their  local  bank.  This  is  being  done  more  and  more  in 
case  of  car-load  shipments,  but  is  not  yet  the  prevailing 
custom. 

The  New  York  bank  examines  each  document  with  great 
care,  and  if  all  are  found  to  be  correct  and  complete  in 
every  detail,  discounts  the  draft  at  the  rate  agreed  upon. 
As  it  is  drawn  for  an  amount  to  include  the  discount, 
Wheeler  &  Layton  receive  payment  in  full  for  the  amount 
of  the  invoice  plus  all  expenses.  The  New  York  bank  in- 
dorses the  draft  and  forwards  it  to  its  correspondent  bank 
in  the  Brazilian  city  where  Martinez  lives.  This  bank 
notifies  Martinez  to  call  and  accept  the  draft.  He  does  so, 
and  is  then  given  possession  of  the  bill  of  lading  and  other 
documents,  which  enable  him  to  get  the  ploughs  from  the 
warehouse.  Complete  instructions  as  to  the  delivery  of 
the  documents  accompanied  the  bill  of  exchange,  so  that 
no  misunderstanding  would  occur.  The  directions  on  this 
draft  read  ^^ Documents  upon  acceptance."  If  they  had 
read  '' Documents  upon  payment,"  Martinez  would  have 
been  obliged  to  pay  the  draft  before  maturity  if  he  desired 
to  get  possession  of  the  documents  and  so  of  the  ploughs. 
In  this  case  the  local  bank  would  have  allowed  him  the 
prevailing  rate  of  discount  for  the  number  of  days  the  draft 
was  paid  before  maturit}^ 

Two  methods  of  financing  exports,  which  do  not,  however, 
involve  the  extension  of  a  term  of  credit  to  the  customer, 


FINANCING  EXPORT  SHIPMENTS         211 

may  be  considered  here.     These  are  the  commercial  letter 
of  credit  and  confirmed  credit. 

Commercial  Letters  of  Credit.— A  large  proportion  of 
our  import  business  has  been  transacted  by  the  use  of  com- 
mercial letters  of  credit.  A  letter  of  credit  is  an  authority 
from  the  banker  who  signs  it  to  the  banker  to  whom  it  is 
addressed,  upon  certain  conditions  to  honor  the  draft  of 
the  person  named  in  it.  Occasionally  letters  of  credit  are 
addressed  to  the  firm  from  whom  the  goods  are  purchased 
instead  of  to  a  bank  in  his  country. 

The  usual  conditions  set  forth  in  a  letter  of  credit  are 
the  presentation  by  the  shipper  of  the  documents  showing 
that  the  goods  have  been  shipped  as  directed  and  the  com- 
pleting of  the  transaction  within  the  time  allotted.  As  a 
rule  drafts  drawn  under  the  letter  of  credit  are  at  sixty  or 
ninety  days  sight,  though  shorter  or  longer  periods  are 
sometimes  stipulated. 

Commercial  letters  of  credit  are  being  used  in  export 
business  to  a  considerable  extent.  They  make  the  sale 
of  the  drafts  drawn  under  them  a  comparatively  easy  trans- 
action, as  is  the  case  with  all  prime  bank  acceptances. 
If  the  banker  confirms  the  letter  of  credit,  the  transaction 
becomes  one  for  the  shipper  of  cash  against  documents, 
and  the  bank  has  no  recourse  on  him,  if  the  goods  are  not 
accepted  and  paid  for  by  the  consignee.  Its  recourse  is  to 
the  bank  signing  the  letter  of  credit. 

Confirmed  Credit. — This  is  not  strictly  a  form  of  credit, 
as  it  stipulates  for  the  opening  of  a  credit  account  by  the 
foreign  customer  with  an  American  bank,  with  instructions 
to  the  bank  to  accept  the  exporter's  sight  draft  with  bill 
of  lading  and  other  documents  attached  when  the  shipment 
is  made.  It  is  called  a  confirmed  credit  because  the  bank 
with  which  the  foreign  buyer  opens  the  account  is  instructed 
to  notify  the  manufacturer  that  such  a  credit  has  been  es- 
tabhshed;  the  credit  is  thus  confirmed  by  the  bank.  As 
the  customer  has  the  money  in  the  bank  before  the  ship- 


212    FOREIGN   TRADE   OF   UNITED   STATES 

ment  is  made,  he  is  really  paying  cash  for  the  goods.  He 
has  this  advantage,  however,  that  his  money  is  not  paid 
until  the  goods  are  actually  shipped.  The  American  bank 
is  given  exact  instructions  as  to  the  conditions  that  are 
agreed  upon  as  to  the  shipment,  and  invariably  takes  the 
utmost  precautions  to  ascertain  that  the  goods  are  being 
shipped  exactly  according  to  the  agreement  entered  in  be- 
tween the  foreign  customer  and  the  American  manufacturer. 

BIBLIOGRAPHY 

American  Exchange  National  Bank,  New  York.  Acceptances, 
Their  Importance  as  a  Means  oj  Increasing  and  Simplifying 
Domestic  and  Foreign  Trade.     New  York,  1913. 

Arnold,  J.  J.  Financing  Cotton.  In  the  Annals  of  the  American 
Academy  of  Political  and  Social  Sciences,  vol.  38,  pp.  579-609, 
September,  191 1. 

Guaranty  Trust  Company,  New  York.  Acceptances.  New 
York,  191 7. 

Guaranty  Trust  Company,  New  York.  How  Business  with 
Foreign  Countries  is  Financed.     New  York. 

Kent,  F.  I.  Financing  Our  Foreign  Trade.  Annals  of  the  Ameri- 
can Academy  of  Political  and  Social  Science,  vol.  36,  pp.  492- 
Soi. 

National  City  Bank,  New  York.  Acceptances.  New  York, 
1917. 

National  City  Bank,  New  York.  American  Banks  in  Foreign 
Trade.     New  York,  191 7. 

Rovensky,  John  E.  The  Development  of  the  American  Discount 
Market  and  Its  Relation  to  Foreign  Trade.  (In  Proceedings 
of  the  International  Trade  Conference.     New  York,  191 5.) 

Van  Deusen,  W.  M.  Acceptances.  (In  Official  Report  of  the 
Fifth  National  Foreign  Trade  Convention.     New  York,  191 8.) 

Warburg,  Paul  M.  The  Discount  System  in  Europe.  U.  S.  6ist 
Congress,  2d  Session,  Senate  document  402. 


CHAPTER  XVII 
FOREIGN  EXCHANGE 

Domestic  Exchange. — An  understanding  of  the  subject 
of  Foreign  Exchange  will  be  made  easier  by  prefacing  that 
study  with  a  brief  review  of  the  methods  by  which  exchange 
between  different  places  in  the  United  States  is  carried  on. 
Specific  illustrations  make  the  comprehension  of  these 
methods  easy. 

Supposing  that  during  the  first  week  of  November  of 
last  year  there  was  shipped  from  Chicago  to  New  York 
City  $2,000,000  worth  of  merchandise,  and  during  the  same 
week  Chicago  merchants  bought  from  New  York  firms 
goods  valued  at  $1,500,000.  These  goods  will  be  paid  for, 
with  few  exceptions,  by  means  of  checks,  bank  drafts,  and 
commercial  drafts.  The  checks  and  bank  drafts  paid  by 
the  New  York  buyers  of  Chicago  goods  will  be  drawn  on 
New  York  banks.  The  commercial  drafts  drawn  on  the 
New  York  firms  by  their  Chicago  creditors  will  be  sent 
to  New  York  for  collection  through  the  local  banks.  So,  as 
the  business  stands  between  the  banks  of  New  York  and 
the  banks  of  Chicago,  the  former  will  be  in  debt  to  the  latter 
for  the  sum  of  $2,000,000.  But  this  is  offset  by  the  pur- 
chases, amounting  to  $1,500,000,  which  the  Chicago  mer- 
chants have  made  from  New  York  houses.  These  Chicago 
buyers  mil  pay  their  debts  by  means  of  bank  checks,  bank 
drafts,  and  by  the  acceptance  and  honoring  of  commercial 
drafts  drawn  on  them,  through  their  local  banks.  Thus, 
Chicago  banks,  upon  which  these  checks  and  drafts  are 
drawn  or  through  which  the  commercial  drafts  are  col- 
lected, will  be  called  upon  to  pay  New  York  banks  the  sum 

213 


214    FOREIGN  TRADE   OF   UNITED   STATES 

of  $1,500,000.  Only  the  balance,  amounting  to  $500,000, 
will  be  transferred  from  New  York  to  Chicago.  But  this 
will  not  be  done  unless  the  balance  is  in  favor  of  Chicago 
for  some  time;  one  week's  balance  may  and  often  does 
quite  cancel  that  of  the  preceding  week,  or  cause  the  balance 
to  stand  on  the  other  side. 

The  rate  of  exchange  is  determined  by  the  condition  of 
this  balance  between  trade  centres.  If,  in  a  given  week,  the 
balance  is  in  favor  of  Chicago,  the  banks  of  that  city,  hav- 
ing a  goodly  credit  balance  in  New  York,  will  be  ready 
enough  to  sell  drafts  to  merchants  or  others  having  pay- 
ments to  make  in  New  York,  for  this  is  the  easiest  and 
quickest  method  of  getting  into  their  own  vaults  some  of 
the  money  due  them.  In  this  case,  exchange  on  New  York 
is  at  a  discount  in  Chicago.  But  the  condition  in  New  York 
would  be  just  the  reverse.  Chicago  exchange  is  scarce  in 
New  York — there  are  not  enough  checks  and  drafts  to  can- 
cel New  York's  indebtedness  to  Chicago — hence,  the  New 
York  banks  are  not  anxious  to  sell  any  drafts  on  Chicago 
banks,  for  this  would  mean  increasing  their  indebtedness 
to  Chicago,  so  they  charge  a  premium  for  such  exchange. 

It  is  understood  that  in  actual  business  such  simplicity 
as  is  suggested  in  the  above  transactions  is  seldom  found. 
As  a  matter  of  fact,  before  a  balance  is  struck  the  entire 
indebtedness  of  Chicago,  not  only  to  New  York  banks,  but 
also  to  all  other  banks  in  the  country,  is  compared  with  the 
entire  amount  due  Chicago  banks  from  New  York  and  all 
other  points  in  the  United  States,  and  the  difiference  con- 
stitutes the  balance. 

The  one  central  clearing-house  of  the  United  States  is 
located  at  New  York.  Bankers  throughout  the  United 
States  have  correspondent  banks  in  New  York  where 
they  keep  deposits  at  all  times.  They  are,  therefore,  al- 
ways in  a  position  to  sell  drafts  on  New  York  or  New 
York  exchange.  Balances  due  from  the  banks  of  one  city 
to  another  are  usually  paid  in  New  York  exchange.    New 


FOREIGN  EXCHANGE  215 

York  City  is  thus  the  financial  centre  of  the  United  States, 
as  it  is  one  of  the  leading  financial  centres  of  the  vrorld. 
Just  as  the  bulk  of  exchange  within  the  United  States  is 
that  on  New  York,  so  the  greater  part  of  exchange  in  inter- 
national trade  has  been  on  London,  though  the  World 
War  has  caused  New  York  to  gain  in  importance  as  a 
financial  centre  at  the  expense  of  London  and  continental 
centres.  The  important  banks  of  the  world  have  for  years 
had  deposits  in  London  banks,  which  enabled  them  at 
any  time  to  draw  drafts  on  London.  These  deposits  have, 
to  a  large  extent,  been  transferred  in  international  transac- 
tions to  New  York,  and  dollar  exchange  on  New  York  is 
being  used  instead  of  sterling  exchange  on  London. 

Preliminary  Definitions. — Foreign  exchange  is  the  system 
by  which  commercial  nations  discharge  their  debts  to  each 
other.  The  e\ddences  of  such  debts  are  bills  of  exchange, 
which  are  bought  and  sold  the  same  as  any  commodity  is 
bought  and  sold.  \\Tien  a  bill  of  exchange  is  sold  by  a 
manufacturer  to  a  banker  the  latter  buys  the  debt;  he 
pays  a  sum  of  money  down  in  return  for  the  payment  to 
him  of  a  larger  sum  at  a  later  date.  The  difference  in  the 
amount  paid  and  the  amount  called  for  in  the  bill  of  ex- 
change is  the  banker's  charge  for  discounting  the  bill  or 
advancing  the  money  on  it  before  m^aturity. 

As  usually  defined,  a  bill  of  exchange  is  an  unconditional 
order  in  writing  addressed  by  one  person  to  another,  re- 
quiring the  latter  to  pay  on  demand  or  at  a  fixed  time  a 
sum  of  money  to  or  to  the  order  of  a  third  party  or  to  the 
bearer.  A  bill  of  exchange  becomes  an  acceptance  when 
the  drawee  has  signed  his  name  across  it,  with  the  date. 
It  is  a  negotiable  instrument  transferable  by  indorsement. 

The  term  draft  is  used  interchangeably  with  the  term 
bill  of  exchange,  although,  strictly,  all  drafts  are  not  bills 
of  exchange.  A  draft  is  not  necessarily  a  negotiable  in- 
strument, as  it  may  be  drawn  subject  to  certain  conditions, 
as  the  arrival  of  goods  at  a  stated  place.     Bills  of  exchange, 


2i6    FOREIGN  TRADE   OF   UNITED   STATES 

then,  are  the  most  common  form  of  draft,  but  every  draft 
is  not  a  bill  of  exchange. 

A  check  is  a  draft  drawn  on  a  banker  payable  on  demand 
to  the  payee,  or  to  his  order,  or  to  the  bearer.  Sight  drafts 
and  demand  drafts  may  be  drawn  either  on  bankers  or  on 
other  persons.  A  check  can  be  drawn  on  a  bank  only  when 
the  drawer  has  funds  in  the  bank;  a  draft  may  be  drawn  by 
agreement  upon  a  bank  when  the  drawer  has  no  funds  on 
deposit.  Not  until  a  draft  is  accepted  does  it  become  an 
obligation  on  the  drawee. 

The  drawer  of  a  draft  is  the  person  who  draws  or  signs  it; 
the  drawee  is  the  person  on  whom  it  is  drawn,  and  who  is 
expected  to  pay  it;  the  payee  is  the  person  to  whom  or  to 
whose  order  it  is  to  be  paid.  The  payee  may  be  the  drawer, 
the  drawee,  or  any  third  person.  The  indorser  of  a  draft  or 
bill  of  exchange  is  the  person  who  signs  his  name  on  it 
other  than  as  drawer  or  accepter.  He  does  this  in  order 
to  transfer  title  to  it  or  in  order  to  guaranty  its  payment. 
A  bill  is  indorsed  in  blank  when  no  person  is  specified  to 
whom  it  is  to  be  paid.  It  may  be  indorsed  payable  to 
some  specified  person  or  to  his  order;  a  person  so  speci- 
fied is  the  indorsee. 

Occasion  for  Exchange. — By  means  of  foreign  exchange 
a  pa3rment  of  any  indebtedness  in  one  place  is  exchanged 
for  a  payment  in  another  place.  A  merchant  in  New  York 
owing  a  London  exporter  for  a  bill  of  goods  may  discharge 
his  debt  by  buying  a  bill  of  exchange,  in  the  form  of  a 
banker's  check  on  London,  which  is  forwarded  to  London 
and  there  paid  to  the  exporter.  The  New  York  merchant 
pays  his  money  in  New  York;  the  same  amount  of  money 
but  not  the  same  money  is  paid  to  the  exporter  in  London. 
The  intermediaries  are  the  New  York  and  London  banks 
involved. 

The  typical  example  of  this  buying  and  selling  of  debts 
involves  four  parties,  two  located  in  one  country  and  two 
in  another.     We  will  say  that  A  and  B  live  in  the  United 


FOREIGN  EXCHANGE  217 

States  and  C  and  D  live  in  England.  A  sells  goods  to 
C;  D  sells  goods  to  B.  A  draws  a  draft  or  bill  of  exchange 
on  C  and  sells  it  to  B.  B  buys  it  because  he  wishes  to 
cancel  his  indebtedness  to  D;  B  therefore  remits  this  bill 
of  exchange  to  his  creditor  D.  The  draft  is  drawn  on  C, 
so  D  presents  it  to  C,  who  accepts  it  and  pays  the  amount 
stipulated  upon  maturity.  In  this  case,  only  one  draft 
was  required  to  cancel  two  debts  between  four  people. 

In  actual  practice,  commercial  transactions  do  not  thus 
offset  each  other,  either  in  amount  or  in  time.  Hence,  a 
bank  is  necessary  as  an  intermediary.  Therefore,  A  draws 
on  C  and  sells  this  bill  of  exchange  to  his  bank  in  New 
York.  D  draws  on  B  and  sells  his  biU  of  exchange  to  his 
London  bank.  A's  bank  forwards  the  bill  of  exchange  on 
C  to  its  London  correspondent  for  collection;  D's  bank 
forwards  the  bill  of  exchange  drawn  on  B  to  its  New  York 
correspondent  for  collection.  The  collections  are  made  at 
the  time  of  maturity.  If  the  amounts  specified  in  the  two 
bills  of  exchange  are  equal,  two  transactions  balance  each 
other;  if  the  amounts  differ,  there  is  a  balance  to  be  settled 
between  the  banks. 

While  the  importation  and  exportation  of  goods  between 
countries  give  rise  to  the  greater  number  of  transactions  in 
foreign  exchange,  there  are  many  other  factors  to  be  con- 
sidered. The  indebtedness  of  the  United  States  to  other 
countries  may  arise  in  the  importation  of  goods,  in  the  ex- 
penses of  Americans  travelling  or  residing  in  foreign  coun- 
tries, in  the  cost  for  transportation  of  goods  in  ships  owned 
abroad,  and  in  the  interest  due  on  foreign  capital  invested 
here.  All  payments  made  on  money  loaned  in  the  United 
States  by  foreign  capitalists,  all  sales  made  by  foreigners 
of  American  securities  previously  bought,  all  remittances 
of  foreign-born  residents  of  the  United  States  to  their  rel- 
atives in  foreign  countries,  all  gifts  and  benefactions  made 
by  Americans  to  the  people  of  other  nations,  and  all  loans 
and  investments  made  by  American  capitalists  in  foreign 


218    FOREIGN  TRADE   OF   UNITED   STATES 

countries  arc  transactions  which  involve  the  remitting  of 
money  or  of  commercial  paper  from  the  United  States  to 
other  countries. 

To  offset  these  are  payments  for  our  exports,  loans  made 
by  foreign  capitalists  to  Americans,  investments  made  by 
foreigners  in  America,  interest  or  dividends  received  by  our 
capitalists  on  money  loaned  or  invested  in  foreign  countries, 
the  proceeds  of  the  sale  by  Americans  of  foreign  securities 
previously  bought,  and  all  other  transactions  which  involve 
the  remitting  of  money  or  of  commercial  paper  from  other 
countries  to  the  United  States. 

The  Buying  and  Selling  of  Exchange.— All  large  Ameri- 
can banks  conducting  a  direct  foreign  exchange  depart- 
ment have  correspondent  banks  in  the  principal  financial 
centres  of  foreign  countries  in  which  they  maintain  accounts. 
In  this  way  such  a  bank  is  able  at  any  time  to  sell  a  bill  of 
exchange  on  any  of  the  trade  centres  of  the  world.  It 
sells  to  the  customer,  for  cash  or  for  his  check,  a  bill  of  ex- 
change payable  at  a  specified  time  in  the  foreign  city. 
The  term  bill  of  exchange  is  used  to  signify  checks,  demand 
drafts,  and  drafts  payable  at  a  certain  number  of  days  after 
sight  or  after  date.  Telegraphic  and  cable  orders  are  also 
sold  in  the  same  way  as  bills  of  exchange. 

In  addition  to  selling  exchange,  banks  also  buy  exchange. 
A  merchant  or  other  person  having  a  commercial  bill  of 
exchange  drawn  on  a  debtor  in  a  foreign  country  often  de- 
sires to  secure  immediate  payment.  In  that  case  he  goes 
to  a  bank  or  exchange-broker  and  sells  it  at  a  fixed  dis- 
count rate.  The  terms  ''sale"  and  ''discount"  are  used 
synonymously  to  describe  this  transaction.  When  a  bill 
of  exchange  is  sold,  it  is  said  to  be  negotiated.  Such  a 
bill  is  indorsed  when  the  transfer  is  made.  The  word  ex- 
change is  often  used,  as  in  the  first  line  of  this  paragraph, 
to  designate  a  bill  of  exchange. 

The  Discount  Rate.— The  discount  rate,  referred  to  in 
the  preceding  paragraph,  is  the  rate  per  cent  at  which  banks 


FOREIGN  EXCHANGE  219 

and  exchange-brokers  discount  the  various  classes  of  bills 
of  exchange  which  they  buy.  In  countries  having  govern- 
ment banks,  this  rate  tends  to  be  uniform  throughout  the 
country.  In  the  United  States  the  rate  differs  in  various 
parts  of  the  country.  However,  the  official  rate  of  the 
Bank  of  England  has  had  a  powerful  influence  upon  the 
discount  rate  in  every  financial  centre.  This  rate  is  es- 
tablished at  the  regular  meeting  of  the  board  of  directors 
on  Thursday  of  each  week.  In  normal  times  the  official 
discount  rate  thus  established  may  remain  unchanged  for 
weeks,  depending  upon  the  condition  of  the  money  market 
as  indicated  by  the  prevailing  interest  rate. 

Private  banks  in  England  usually  have  a  private  rate, 
which  is  lower  than  the  official  or  bank  rate,  as  it  is  often 
called. 

The  rate  quoted  on  prime  bank  acceptances,  which  are 
sixty  or  ninety  day  bills  drawn  on  banks,  fixes  the  level 
of  the  market.  Bank-bills  are  always  discounted  at  the 
best  rates.  The  rate  for  commercial  bills  of  exchange  is 
about  yi  per  cent  higher  than  for  bank-bills  of  exchange 
having  the  same  time  to  run. 

Monetary  Systems. — The  failure  of  the  commercial  na- 
tions of  the  world  to  adopt  a  uniform  monetary  system 
greatly  complicates  exchange  transactions.  A  knowledge 
of  the  monetary  systems  of  the  different  commercial  na- 
tions is  essential  to  an  understanding  of  foreign  exchange. 
We  will  consider  the  money  of  the  leading  commercial 
nations  other  than  the  United  States. 

The  monetary  system  of  Great  Britain  is  the  most  im- 
portant of  all,  because  the  great  bulk  of  foreign  exchange 
has  long  been  drawn  in  sterling.  The  pound  sterling  is 
equal  to  20  shillings,  i  shilling  is  equal  to  12  pence,  and  each 
penny  is  equal  to  4  farthings.  The  Enghsh  pound  is  often 
called  the  sovereign.  It  is  the  largest  unit  of  money  with 
the  exception  of  the  Peruvian  libra  and  the  Egyptian  pound. 
The  pound  sterling  has  been  for  over  a  century  the  basis 


2  20    FOREIGN   TRADE   OF   UNITED   STATES 

of  international  exchange.  The  efiFect  of  the  World  War 
has  been  to  promote  the  use  of  dollar  exchange.  This 
will  be  discussed  later. 

The  mark  or  reichsmark  is  the  principal  German  coin. 

France  has  for  its  principal  coin  the  franc,  which  is  di- 
vided into  loo  centimes.  Belgium  and  Switzerland  have 
the  same  monetary  system  as  France.  Italy  has  prac- 
tically the  same  system,  but  uses  different  names,  the  coin 
corresponding  to  the  franc  being  called  the  lira.  It  is  di- 
vided into  loo  centesimi.  Greece,  Spain,  Bulgaria,  Ru- 
mania, Serbia,  Austria-Hungary,  and  Finland  all  have 
monetary  systems  similar  to  that  of  France,  the  unit  being 
a  coin  of  the  value  of  the  franc. 

The  Mint  Par  of  Exchange. — These  monetary  systems 
are  better  understood  by  comparing  the  unit  of  one  coun- 
try with  that  of  another.  This  is  done  by  comparing  the 
amount  of  gold  contained  in  the  currency  unit  of  the  two 
countries.  This  is  called  the  mint  par  of  exchange.  It  is 
the  fixed,  intrinsic  value  of  the  standard  coin  of  one  coun- 
try expressed  in  terms  of  another.  The  mint  par  of  ex- 
change between  the  United  States  and  England  is  the 
actual  value  in  dollars  and  cents  of  the  pound  sterling,  ac- 
cording to  the  weight  and  fineness  of  the  gold  in  the  two 
coins. 

The  mint  par  of  exchange  between  any  two  countries 
may  be  readily  determined  by  dividing  the  weight  of  the 
pure  gold,  as  fixed  by  law,  contained  in  the  gold  unit  of 
one  country  by  the  weight  of  the  pure  gold,  as  fixed  by  law, 
in  the  gold  unit  of  the  other  country.  In  case  of  silver 
monetary  units,  the  exact  value  of  each  may  be  ascertained 
in  gold  and  then  the  comparison  made.  Gold  is  the  gen- 
erally accepted  standard  of  value.  It  is  the  only  metal 
of  which  the  value  is  fixed  by  law.  The  price  of  silver 
fluctuates  according  to  market  conditions. 

The  mint  par  of  exchange  of  the  pound  sterling  or  sover- 
eign in  United  States  money  is  $4.8665;   of  the  franc  and 


FOREIGN  EXCHANGE  221 

lira,  19.3  cents  each;  of  the  reichsmark  or  mark,  2;^, 8 
cents. 

The  Rate  of  Exchange. — While  the  mint  par  of  exchange 
is  stationary,  the  commercial  par  of  exchange,  or  the  price 
paid  for  a  bill  of  exchange  in  one  country  on  another,  is 
subject  to  fluctuations.  The  commercial  par  of  exchange 
is  the  same  as  the  mint  par  of  exchange  when  a  demand 
draft  on  one  country  sells  in  the  other  for  the  exact  equiva- 
lent in  coin  of  its  face  value.  Theoretically,  this  is  the 
case  when  the  debits  and  credits  between  two  countries 
are  exactly  equal.  For  example,  if  the  United  States  owed 
England  precisely  the  same  amount  as  England  owed  the 
United  States,  the  price  of  exchange  would  be  at  par.  If 
England  owed  the  United  States  more  than  we  owed  Eng- 
land, the  demand  for  exchange  on  England  would  not  equal 
the  supply,  with  the  result  that  sterHng  exchange  here 
would  be  at  a  discount.  The  reverse  would  be  the  case  in 
England,  where  there  would  be  an  active  demand  for  ex- 
change on  the  United  States,  with  the  result  that  it  would 
be  at  a  premium. 

The  Gold  Points. — The  fluctuation  in  exchange  is  limited 
to  the  cost  of  transporting  the  coin  or  bullion  between  the 
two  countries  involved.  This  cost  of  transportation  in- 
cludes the  cost  of  packing,  shipping,  insurance,  and  the 
slight  loss  in  weight  caused  by  wear  in  transit.  Interest 
on  the  money  for  the  period  required  to  transport  it  from 
one  country  to  another  is  also  to  be  added.  In  normal 
times,  the  premium  paid  for  exchange  on  one  country  in 
another  will  not  exceed  this  cost  of  transportation;  if  it 
does,  gold  will  be  shipped  in  preference  to  paying  th^e  high 
premium.  The  cost  of  foreign  exchange  thus  fluctuates 
between  tv,T)  points,  the  gold-exporting  and  the  gold-im- 
porting points.  Gold  is  exported  when  the  premium  on 
exchange  exceeds  the  cost  of  transportation;  gold  is  im- 
ported when  the  discount  on  exchange  exceeds  the  cost  of 
transportation. 


222     FOREIGN  TRADE   OF   UNITED   STATES 

The  rate  at  which  gold  leaves  a  country  and  the  rate  at 
which  it  enters  a  country  are  the  two  extremes  in  the  rate 
of  exchange  known  as  the  Gold  Points.  What  has  been 
said  applies  only  when  conditions  are  normal.  An  em- 
bargo on  gold,  abnormal  trade  balances,  and  other  unusual 
conditions  making  it  impossible  to  pay  balances  in  gold 
result  in  extreme  fluctuations  in  exchange. 

Fixing  the  Rate  of  Exchange. — The  rate  of  exchange  has 
been  defined  as  the  price  paid  for  a  bill  of  exchange  in  one 
country  on  another.  It  is  also  referred  to  as  the  commer- 
cial par  of  exchange.  The  term  exchange  is  often  used  to 
signify  the  rate  of  exchange.  The  rate  of  exchange  is 
quite  distinct  from  the  discount  rate,  though  when  a  bill 
drawn  in  a  foreign  currency  is  purchased,  the  discount 
is  charged  in  the  rate  of  exchange. 

The  method  by  which  the  rate  of  exchange  is  arrived  at 
is  of  interest.  The  prevailing  rate  of  exchange  for  various 
countries  is  estabUshed  in  the  financial  centres  or  centre 
of  each  country.  For  example,  the  rates  on  London, 
Paris,  Antwerp,  etc.,  that  is,  the  rates  at  which  bills  of  ex- 
change payable  in  those  cities  are  sold  in  New  York,  are 
established  by  New  York  bankers  daily.  This  rate  largely 
determines  the  rate  for  other  cities  in  the  United  States. 
The  determining  factor  in  fixing  the  rate  of  exchange  is 
the  relation  between  the  demand  for  bills  of  exchange 
and  the  supply  of  the  same.  In  the  United  States  at  the 
outbreak  of  the  World  War  in  the  fall  of  1914  the  de- 
mand for  exchange  on  England  greatly  exceeded  the  sup- 
ply, because  it  happened  that  just  at  that  time  there  was 
a  balance  of  indebtedness  estimated  at  about  $250,000,000 
of  America  to  European  countries.  In  the  natural  order 
of  commerce,  this  indebtedness  would  have  been  largely 
offset  by  the  exportation  of  great  quantities  of  grain,  cotton, 
and  other  products  usually  shipped  in  the  fall.  As  com- 
merce was  practically  suspended  for  the  time  being,  these 
exports  could  not  be  shipped.    The  balance,  therefore,  had 


FOREIGN  EXCHANGE  223 

to  be  settled  by  the  use  of  money  or  bills  of  exchange.  Gold 
shipments  could  not  be  made,  for  fear  they  would  be  cap- 
tured by  one  of  the  belligerent  nations.  The  Kronprin- 
zessin  Cecilie  attempted  to  sail  for  Europe  from  New  York 
on  July  28,  1 9 14,  with  a  consigmnent  of  gold  aggregating 
nearly  $10,000,000,  but  was  recalled. 

Fluctuations  in  Exchange. — Such  a  situation  created  an 
unparalleled  demand  for  bills  of  exchange,  with  the  result 
that  the  rate  for  exchange  on  London  rose  far  above  the 
usually  accepted  gold-shipping  point  of  $4.88^  or  S4.89. 
The  rate  of  $5.00  was  first  quoted,  and  then,  under  the 
general  disorganization,  quotations  of  $6.00  and  even  $7.00 
were  made.  In  order  to  restore  the  rates  to  something  like 
normal,  the  New  York  bankers  joined  in  an  arrangement 
wdth  the  Bank  of  England  to  ship  gold  in  great  quantities 
to  the  Canadian  Government  at  Ottawa,  at  the  rate  of 
$4.90.  This  had  the  desired  effect  of  stabilizing  exchange 
until  shipments  of  commodities  could  be  resumed.  The 
excessive  rates  just  referred  to,  if  they  had  continued, 
would  have  meant  the  financial  ruin  of  many  importers 
and  others  having  obligations  to  pay  in  England  or  else- 
where in  Europe. 

Hardly  had  the  excessive  rates  for  pounds  sterling  and 
for  other  foreign  bills  been  reduced  to  about  normal  before 
a  change  in  the  other  direction  occurred.  This  was  occa- 
sioned by  the  immense  sales  Americans  made  to  England 
and  to  other  foreign  countries,  which,  before  the  close  of 
191 5,  placed  the  United  States  in  the  position  of  a  creditor 
nation,  the  indebtedness  of  other  countries  to  us  far  ex- 
ceeding our  liabilities.  Such  a  situation  created  an  un- 
precedented condition — that  of  an  excess  of  bills  on  Lon- 
don, and  the  problem  that  confronted  the  exporter  was 
how  to  obtain  cash  for  such  bills.  The  result  was  that  the 
rate  of  exchange  on  London  fell  as  low  as  $4,483^  in  August, 
1915.  Conversely,  the  unprecedented  demand  in  London 
for  bills  on  New  York  caused  the  dollar  to  be  quoted  at  a 


2  24    FOREIGN   TRADE   OF   UNITED   STATES 

premium.  Our  trade  balance  had  become  so  enormous 
that  the  idea  of  shipping  gold  to  cancel  it  could  not  be  en- 
tertained. It  was  cancelled  in  three  ways:  First,  by  the 
sale  of  American  securities  held  abroad,  the  return  of  these 
securities  taking  the  place  of  gold  shipments.  Second,  by 
the  sale  in  America  of  British  and  other  foreign  securities, 
which  created  a  great  credit  here  in  favor  of  the  foreign 
nation  selling  the  securities.  Third,  by  the  actual  ship- 
ment of  great  quantities  of  gold.  Our  excessive  sales  could 
not  have  been  continued  without  the  transfer  of  securities. 

The  depreciation  of  the  pound  sterling  was  checked  in 
the  period  between  191 6  and  1919  by  government  loans 
made  by  the  United  States  to  Great  Britain,  supplemented 
by  private  loans.  These  loans  created  a  demand  in  New 
York  for  exchange  on  London,  offsetting  the  demand  for 
exchange  on  New  York  to  pay  the  enormous  merchandise 
balance  due  the  United  States.  In  other  words,  our  ex- 
ports to  Great  Britain  were  offset  by  our  imports  from 
Great  Britain  plus  the  loans  made  to  that  country.  Thus 
sterling  exchange  was  m.aintained  at  not  far  below  par. 

In  1 91 9  and  1920,  after  the  artificial  props  that  upheld 
exchange  during  the  war  were  removed,  sterling  exchange 
fell  to  the  lowest  point  ever  reached,  the  pound  being 
quoted  on  August  20,  191 9,  at  $4. 12^2.  It  seemed  that 
the  downward  trend  could  go  no  further,  but  this  proved 
to  be  only  the  beginning.  By  February,  1920,  the  pound 
had  fallen  to  $3.20.  The  franc,  the  lira,  and  other  foreign 
money  units  suffered  even  greater  depreciation,  while  the 
German  mark  fell  almost  to  the  vanishing-point.  At  the 
same  time  the  American  dollar  stood  at  a  premium  in  Great 
Britain,  France,  Italy,  and  in  all  but  a  few  other  nations. 
Wherever  the  dollar  stood  at  a  premium,  the  trade  balance 
was  in  favor  of  the  United  States;  in  Japan  and  certain 
South  American  and  other  countries  from  which  we  pur- 
chased more  than  we  sold,  the  demand  for  dollar  exchange 
was  not  equal  to  the  supply,  with  the  result  that  the  dollar 


FOREIGN  EXCHANGE  225 

stood  at  a  discount  in  these  countries.  After  the  embargo 
on  the  exportation  of  gold  was  Hfted,  large  shipments  of 
this  metal  were  made  to  the  countries  in  which  the  balance 
was  against  us,  thus  offsetting  in  a  measure  the  tendency 
for  the  dollar  to  be  depreciated  there. 

The  following  from  Moody's  Investors^  Service^  New 
York,  sums  up  the  situation  in  the  early  months  of  1920: 

For  us  this  foreign  exchange  situation  points  to  smaller  net  mer- 
chandise exports,  increased  competition  with  foreign  goods  both  at 
home  and  abroad,  a  further  decline  in  ocean  freight  rates,  special 
competition  in  such  international  products  as  dyes,  chemicals,  and 
textiles,  and  lower  prices  for  the  majority  of  products  which  are 
subject  to  foreign  competition. 

For  Great  Britain  the  monetary  and  foreign  exchange  outlook 
is  good;  but  for  France  it  is  filled  with  great  difficulties;  while 
the  monetary  position  of  Germany  and  Italy  is  very  uncertain  in- 
deed. The  European  neutrals  and  Canada,  AustraHa,  Japan,  and 
the  South  American  countries  are  in  good  shape. 

The  depreciation  of  the  bills  of  Great  Britain,  the  European  small 
neutral  nations,  and  of  South  American  countries  may  be  attributed 
mostly  to  trade  balances,  and  to  their  heavy  purchases  of  foreign 
goods;  but  the  depreciation  of  francs,  marks,  lira,  and  kronen 
seems  to  be  due  almost  wholly  to  the  paper-money  inflation. 


Exchange  Quotations. — Quotations  of  foreign  exchange 
rates  are  pubhshed  each  day  in  leading  city  papers.  Quo- 
tations are  for  checks  or  demand  drafts,  cable  transfers, 
and  time  drafts.  Exchange  on  each  country  is  quoted 
differently.  For  instance,  the  quotation  for  sterUng  is 
given  by  stating  the  rate  in  United  States  money  per  pound. 
On  the  other  hand,  the  rate  for  French  francs  is  stated  as 
the  number  of  francs  and  centimes  allowed  for  a  dollar; 
it  is  expressed  thus:  5.15,  meaning  that  5  francs  15  centimes 
are  allowed  for  one  dollar.  The  quotation  on  Germany  is 
made  by  stating  the  price  allowed  in  United  States  money 
for  4  marks;  it  is  expressed  thus:  95 A,  indicating  that 
this  is  the  number  of  cents  allowed  for  4  marks. 


226    FOREIGN  TRADE  OF  UNITED   STATES 

The  method  used  in  making  quotations  will  be  made 
clearer  by  considering  the  following,  as  published  in  New 
York  papers  on  the  dates  indicated.  It  is  interesting  to 
note  the  fluctuations,  due  to  abnormal  conditions  brought 
about  by  the  war.  The  depreciation  of  the  foreign  cur- 
rency unit  is  apparent. 


Demand  or  check 

July  I,  1914 

July  I,  191 5 

December  9.  1916 

London 

$4-87K 
-95'A 

$4  7^H 

5.70 
.81^ 

^4-72^ 

5.85 

.66X 

Paris 

Berlin 

Advantages  of  Dollar  Exchange. — The  larger  part  of 
our  imports  and  exports  has  been  bought  and  sold  in  terms 
of  foreign  currency.  When  we  buy  from  England,  the 
price  is  quoted  in  pounds  sterling;  when  we  buy  from  Ger- 
many, the  price  is  quoted  in  marks;  when  we  buy  from 
France,  the  price  is  quoted  in  francs.  Again,  when  we  sell 
to  Germany,  we  find  it  necessary  to  quote  prices  in  marks; 
when  we  sell  to  France,  we  must  quote  prices  in  francs,  etc. 
In  trading  with  smaller  countries  prices  are  quoted  in  pounds 
sterling;  the  result  is  that  the  pound  sterHng  has  for  a 
century  been  the  basis  of  international  exchange.  Two 
conversions  have  thus  resulted  in  many  transactions; 
from  the  money  of  the  first  country  into  sterling  and  then 
into  the  money  of  the  second  country  involved.  This 
has  been  a  great  advantage  to  English  banks  and  com- 
mercial houses,  which  charge  a  commission  for  every  con- 
version or  exchange  made.  The  disadvantage  the  United 
States  has  suffered  in  having  to  buy  and  sell  in  other  cur- 
rency than  our  own  is  this:  in  the  first  place,  we  have  had 
to  pay  tribute  to  England  or  to  other  foreign  bankers  in 
the  form  of  commission  for  conversion;  in  the  second 
place,  in  credit  transactions  involving  time  drafts  there 


FOREIGN  EXCHANGE  227 

are  often  serious  losses  due  to  fluctuations  in  the  commer- 
cial par  of  exchange.  The  establishment  of  dollar  exchange 
will,  in  the  words  of  an  officer  of  the  National  Shawmut 
Bank  of  Boston,  ''do  much  to  help  our  foreign  trade. 
In  its  essence  it  will  guaranty  to  the  exporter  that  he 
will  receive  the  actual  amount  which  he  has  reckoned 
on  as  his  seUing  price,  and  that  the  importer  will  pay 
to  the  foreign  seller  the  exact  amount  in  terms  which  he 
has  reckoned  on  as  his  cost,  both  of  these  being  accom- 
plished by  eliminating  the  necessity  on  the  part  of  our  mer- 
chants of  converting  into  dollars  through  the  varying  media 
of  sterHng,  marks,  or  francs." 

An  excellent  illustrarion  of  this  was  given  by  John  E. 
Rovensky,  vice-president  of  the  National  Bank  of  Com- 
merce of  New  York,  in  a  speech  made  at  the  International 
Trade  Conference  held  in  New  York  City  in  December, 
191 5.     Mr.  Rovensky  said: 

Let  us  take  as  an  instance  the  importation  of  coffee  from 
Brazil,  as  the  business  was  conducted  prior  to  the  outbreak  of  the 
war.  The  American  importer  desiring  to  purchase  the  coffee  was 
compelled  by  custom  to  make  his  bid  in  sterHng  and  pay  the  coffee 
merchant  by  means  of  a  sterling  commercial  letter  of  credit  on  a 
London  bank.  Under  the  terms  of  this  letter  of  credit,  the  Brazil- 
ian coffee  merchant  drew  his  drafts  in  pounds  sterling  for  the  value 
of  his  shipments  at  ninety  days  sight  on  a  London  bank.  He  was 
willing  to  accept  reimbursement  in  this  form  because  the  ninety- 
days  London  draft  was  readily  taken  by  BraziUan  banks  as  cash,  and 
he  could  calculate  at  the  time  he  sold  his  coffee  the  value  of  a 
sterling  draft  so  drawn  within  a  very  narrow  margin.  The  Brazilian 
banks  were  willing  to  cash  such  drafts  for  their  customers  because 
by  discounting  them  immediately  in  the  London  open  discount 
market  they  could  quickly  convert  them  into  cash  and  consequently 
the  transaction  involved  no  tie-up  of  funds  or  risk  of  loss  on  ex- 
change. 

The  Brazilian  merchant,  however,  was  not  wilHng  prior  to  the 
passage  of  the  Federal  Reserve  Act  to  accept  a  payment  in  the 
form  of  a  three-months  draft  drawn  in  dollars.  Why?  Because 
there  being  no  open  discount  market  in  the  United  States,  either  the 
Brazihan  merchant  or  his  banker  would  have  been  compelled  to 


2  28    FOREIGN  TRADE   OF  UNITED   STATES 

carry  the  bill  in  his  portfolio  until  maturity,  and  this,  involving  the 
risk  of  exchange  fluctuations  and  a  lock-up  of  cash,  was  of  course 
impracticable. 

Now  let  us  see  what  effect  this  had  on  the  American  importer's 
business. 

When  cabling  his  bid  for  coffee  to  the  Brazilian  merchant,  the 
American  merchant  was  compelled  to  estimate  what  sterling  ex- 
change would  cost  him,  approximately  four  months  from  the  date 
of  his  cablegram.  This  period  was  consumed  by  the  time  required 
for  the  Brazilian  draft  to  reach  London  and  the  three-months  tenor 
of  the  bill.  Therefore,  if  the  American  importer  sent  a  quotation 
to  Brazil  for  a  consignment  of  coffee  valued  at  £10,000,  he  did  not 
know  whether  at  the  maturity  of  the  90  days  draft  drawn  against 
such  shipment  he  would  be  called  upon  to  pay  $48,500  or  $48,900. 
He  was  thus  compelled  to  gamble  on  the  course  of  the  exchange 
market,  and  if  he  overestimated  the  danger  of  exchange  fluctuations, 
his  bid  was  not  as  good  as  that  of  his  foreign  competitor,  and  he 
frequently  lost  the  business,  while  if  he  underestimated  the  ex- 
change fluctuation  he  lost  money.  Our  exports  and  imports  to 
numerous  other  countries  suffered  under  the  same  disadvantage. 
Importers  of  hides  from  India,  silk  from  Spain,  wool  from  Australia, 
etc.,  did  not  know  what  their  consignments  would  finally  cost 
them  when  the  time  for  payment  arrived. 

Need  of  Reciprocal  Trade  Relations. — Unless  we  buy 
from  as  well  as  sell  to  other  countries,  it  will  be  difficult  to 
carry  on  transactions  in  dollar  exchange.  For  instance,  if 
we  sell  goods  to  Latin  America  and  demand  payment  in 
dollar  exchange,  this  will  create  a  demand  in  Latin  America 
for  New  York  (dollar)  exchange.  If  we  fail  to  buy  Latin 
American  exports,  these  must  and  will  be  sold  to  other 
countries.  Supposing  England  takes  the  bulk  of  these  ex- 
ports. Then  this  condition  is  created  in  Latin  America. 
There  is  a  demand  there  for  dollar  exchange  to  pay  for  goods 
imported  from  the  United  States;  there  is  a  supply  of  ster- 
ling exchange  received  in  payment  of  goods  sold  to  Great 
Britain  and  other  countries  using  sterling  exchange.  The 
result  is  that  dollar  exchange,  which  is  scarce,  is  at  a  pre- 
mium, and  sterling  exchange,  which  is  plentiful,  is  at  a  dis- 
count. 


FOREIGN  EXCHANGE  229 

The  Latin  American  merchant  will,  therefore,  prefer 
to  pay  for  his  imports  in  sterling,  and  in  placing  his  next 
orders  he  wall  naturally  buy  in  England  or  stipulate  that 
goods  bought  from  the  United  States  are  to  be  paid  for 
in  sterHng  and  not  in  dollar  exchange.  If  dollar  exchange 
is  to  prevail,  there  must  be  a  supply  of  it  in  Latin  America. 
This  can  be  created  in  several  ways,  of  which  the  follow- 
ing are  the  most  obvious: 

1.  By  bu>ing  Latin  American  exports,  and  paying  for 
them  in  dollar  exchange. 

2.  By  American  capitalists  making  loans  to  Latin  Ameri- 
can financiers. 

3.  By  American  capitalists  investing  in  Latin  American 
securities  or  in  Latin  American  plantations  or  other  prop- 
erty. 

Each  one  of  the  transactions  indicated  involves  the 
sending  of  money  in  the  form  of  dollar  exchange  from  the 
United  States  to  Latin  America.  Dollar  exchange,  then, 
Vidll  be  offered  for  sale  there,  and  the  Latin  American  im- 
porter will  find  it  to  his  advantage  to  buy  this  to  remit 
to  the  United  States  in  payment  of  goods  purchased  here. 
Exactly  the  same  principles  apply  in  regard  to  our  trade 
with  other  countries. 

Arbitrated  Exchange. — Arbitrated  exchange  is  often 
used  in  business  and  financial  transactions.  This  is  ex- 
change between  any  two  countries  through  the  medium  of 
a  third  country.  By  its  use  money  may  be  remitted  from 
one  country  to  another  by  means  of  a  bill  of  exchange 
drawn  on  a  third  country.  For  instance,  a  St.  Louis  im- 
porter of  goods  from  Japan,  instead  of  paying  in  dollar  or 
Japanese  exchange,  may  remit  sterHng  exchange.  The 
use  of  sterling  exchange  in  arbitrage  transactions  has  been 
one  of  the  chief  factors  in  making  London  the  financial 
centre  of  the  world.  The  importance  of  such  transactions 
is  clearly  set  forth  by  David  H.  G.  Penny,  vice-president  of 
the  Irving  National  Bank  of  New  York,  as  follows: 


230    FOREIGN  TRADE   OF  UNITED   STATES 

London  is  the  financial  centre  of  the  world  only  because  she  has 
been  financing  so  much  more  trade  between  other  countries  and 
England.  New  York  can  only  acquire  that  distinction  when  this 
country  actually  finances  trade  between  other  countries  and  when 
Americans  participate  in  foreign  enterprises  and  buy  foreign  se- 
curities to  create  a  demand  for  bills  of  exchange  on  New  York  to 
liquidate  indebtedness  and  pay  interest  on  those  foreign  invest- 
ments. 

BIBLIOGRAPHY 

Brooks,  H.  R.     Textbook  on  Foreign  Exchange.     Chicago,  1908. 

Brown,  Harry  Gunnison.  Foreign  Exchange  ;  a  Study  of  the  Ex- 
change Mechanism  of  Commerce.     New  York,  1915. 

Brown,  Harry  Gunnison.  International  Trade  and  Exchange ; 
a  Study  of  the  Mechanism  and  Advantages  of  Commerce.  New 
York,  1914. 

Brown,  Harry  Gunnison.  Principles  of  Commerce  :  a  Study  of 
the  Mechanism,  the  Advantages,  and  the  Transportation  Costs 
of  Foreign  and  Domestic  Trade.     New  York,  191 7. 

Clare,  George.  The  A  B  C  of  the  Foreign  Exchanges  :  a  Practical 
Guide.     London,  New  York,  1893. 

E ASTON,  Harry  Tucker.  Tate^s  Modern  Cambist :  a  Manual  of 
Foreign  Exchanges  and  Bullion,  with  the  Monetary  Systems  of 
the  World  and  Foreign  Weights  and  Measures  ;  with  Chapters 
on  Exchange  and  Bullion  Operations.     25th  edition.     191 2. 

Easton,  Harry  Tucker.  Money,  Exchange,  and  Banking  in  Their 
Practical,  Theoretical,  and  Legal  Aspects,  a  Complete  Manual 
for  Bank  Officials,  Business  Men,  and  Students  of  Commerce. 
London,  1907. 

EscHER,  Franklin.  Elements  of  Foreign  Exchange,  a  Foreign  Ex- 
change Primer.     New  York,  191 6. 

Escher,  Franklin.  Foreign  Exchange  Explained.  New  York, 
1917. 

Gardin,  J.  E.  Finances  of  Nations  as  Reflected  in  International 
Exchange.  In  The  Americas,  v.  3,  pp.  1-3,  May,  191 7.  Same, 
Economic  World,  n.  s.,  vol.  13,  pp.  762-4,  June  2,  191 7. 

Gardin,  J.  E.  Foreign  Exchange  Problems.  National  City  Bank 
of  New  York.     1913. 

Gardner,  James  Peter.  The  Moneys  of  the  World ;  a  Guide  to 
the  Foreign  Moneys  Current  Throughout  the  World,  with  the 
Average  Rate  at  Which  Such  Moneys  May  Be  Exchanged  in  New 
York  City.     New  York,  1909. 


FOREIGN  EXCHANGE  231 

Gonzales,  V.  Modern  Foreign  Exchange.  Monetary  Systems,  In- 
trinsic Equivalents,  and  Commercial  Rates  of  Exchange  of  All 
Foreign  Countries  and  Their  Relation  to  United  States  Money. 

1914. 
Hepburn,  Alonzo  Barton.     History  of  Currency  in  the   Umted 

States,  with  a  Brief  Description  of  the  Currency  Systems  of  All 

Commercial  Nations,  with  Bibliography.     New  York,  191 7. 
RovENSKY,  J.  E.     Development  of  Dollar  Exchange.    In  National 

Association  of  Credit  Men.     Bulletin  17,  pp.  997-iooi»  October, 

South  American  View  of  Credit  Exchange  Arrangements.  In  Ameri- 
cas, vol.  4,  PP-  8-10,  July,  1918- 

Spalding,  William  Frederick.  Eastern  Exchange,  Currency,  and 
Finance.     London,  191 7. 

Spalding,  William  Frederick.  Foreign  Exchange  and  Foreign 
Bills  in  Theory  and  in  Practice.    London,  New  York,  191 5. 

Study  of  the  Trade  Balance  and  Foreign  Exchange  Situation.  In 
Economic  World,  n.  s.,  vol.  15,  PP-  115-118,  July  27,  1918. 

Tate,  William.  Tate's  Modern  Cambist :  a  Manual  of  Foreign  Ex- 
changes and  Bullion,  with  the  Monetary  Systems  of  the  World 
and  Foreign  Weights  and  Measures.     25th  edition.     London, 

1912. 
Taussig,  F.  W.    I jiter national  Trade  Voider  Depreciated  Paper  ; 
a  Contribution  to  Theory.     In  Quarterly  Journal  of  Economics, 

vol.  31,  pp.  380-403,  May,  1917- 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Factors  tn 
Foreign  Trade.     In  Miscellaneous  series  no.  7,  191 2. 

U.  S.  Federal  Reserve  Board.  Foreign  Exchange  and  Other  Re- 
lated Transactions,  Executive  Order  of  the  President  Dated  Jan- 
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Federal  Reserve  Board.     191 8. 

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of  the  American  Academy,  vol.  68,  pp.  1 51-160,  November,  1916. 


CHAPTER  XVIII 

THE  BALANCE  OF  TRADE 

The  Mercantile  Theory. — The  difference  between  the 
value  of  the  exports  and  the  imports  of  a  country  is  re- 
ferred to  as  ^'the  balance  of  trade."  By  long-estabhshed 
usage,  such  a  balance  is  said  to  be  ^'favorable''  when  the 
value  of  the  exports  exceeds  the  value  of  the  imports,  and 
''unfavorable"  when  the  value  of  the  imports  exceeds  the 
value  of  the  exports.  This  use  of  the  words  favorable  and 
unfavorable  arose  during  the  period  when  the  economic 
theory  known  as  the  mercantile  theory  prevailed.  The 
fundamental  tenet  of  mercantihsm  was  that  the  principal 
benefit  to  be  derived  by  a  nation  through  foreign  trade 
was  the  possible  addition  to  its  stock  of  precious  metals. 
Therefore,  it  was  considered  that  the  one  aim  of  govern- 
ments in  regard  to  foreign  trade  should  be  to  restrict  im- 
ports and  stimulate  exports,  for  by  so  doing  it  was  thought 
the  '^ favorable"  balance  thus  estabHshed  must  result  in 
the  importation  of  gold  and  silver.  Thomas  Mun,  an 
early  English  writer,  thus  elucidates  the  mercantile  theory: 

The  ordinary  means  to  increase  our  wealth  and  treasure  is  by 
Foreign  Trade,  wherein  we  must  ever  observe  this  rule:  to  sell 
more  to  strangers  yearly  than  we  consume  of  theirs  in  value.  By 
such  a  course  the  balance  must  be  paid  in  coin,  and  the  country 
enriched,  while  a  contrary  course  would  deplete  its  stock  of  the 
precious  metals. 

It  has  long  been  established  that  the  theory  propounded 
by  the  mercantile  school  of  economists  is  at  variance  with 
the  facts.  Examples  innumerable  may  be  cited  wherein 
an  excess  of  exports  has  not  resulted  in  the  importation  of 

232 


THE  BALANCE  OF  TRADE  233 

the  precious  metals,  and  where  an  excess  of  imports  has 
not  drawn  gold  or  silver  out  of  the  country.  As  explained 
in  the  chapter  on  Foreign  Exchange,  there  are  factors  af- 
fecting the  balance  between  nations  other  than  the  exchange 
of  commodities.  One  country  puts  others  into  its  debt 
not  only  by  the  exportation  of  commodities,  but  also  by 
loaning  or  investing  money,  by  rendering  services  of  vari- 
ous kinds,  and  by  attracting  foreign  visitors,  who  may  be 
passing  tourists  or  more  or  less  permanent  residents,  draw- 
ing their  income  in  either  case  from  their  native  land. 
Thus  the  international  flow  of  the  precious  metals  is  de- 
termined by  many  conditions,  and  does  not  follow  either 
an  excess  of  exports  nor  an  excess  of  imports. 

Barter  in  International  Trade. — It  is  clear  that  a  foreign 
trade  of  tremendous  volume  can  be  carried  on  with  little 
or  no  exchange  of  gold  between  the  nations  involved.  In- 
ternational trade  thus  partakes  of  the  nature  of  barter, 
commodities  being  exchanged  for  commodities,  and  not  for 
money.  The  commodities  need  not  be  equal  in  value,  be- 
cause services  may  be  given  or  received  in  exchange  for 
commodities,  but  this  does  not  alter  the  fact  that  a  con- 
dition of  barter  largely  maintains.  As  between  individ- 
ual merchants  and  manufacturers  this  does  not  seem  to 
be  the  case.  An  American  exporter  sells  manufactured 
goods  to  a  Brazilian  importer  and  receives  in  payment 
cash  against  dociunents  in  New  York;  he,  therefore,  may 
insist  that  he  has  sold  his  products  for  gold  and  has  not 
exchanged  them  for  other  products.  But,  as  the  study 
of  the  methods  employed  in  foreign  exchange  has  made 
clear,  the  gold  he  received  may  have  been  paid  by  an 
American  importer  of  BraziHan  coffee,  who  purchased  with 
it  a  bill  of  exchange  or  a  commercial  letter  of  credit  from  his 
New  York  bank,  which  was  duly  forwarded  to  the  Brazilian 
coffee  merchant.  In  essence,  then,  American  manufac- 
tures were  exchanged  for  BraziHan  coffee.  Or  a  cotton  ex- 
porter may  ship  a  cargo  from  Galveston  to  a  French  cotton 


234    FOREIGN  TRADE   OF   UNITED   STATES 

merchant,  and  receive  in  payment  a  commercial  letter  of 
credit  on  a  New  York  bank.  He  cashes  this  and  receives 
money  for  his  shipment,  but  there  is  not  one  chance  in  a 
million  that  this  money  or  an  equivalent  sum  of  money 
was  actually  shipped  from  France.  That  very  sum  may 
have  been  deposited  in  the  New  York  bank  by  a  merchant 
in  payment  of  a  letter  of  credit  in  favor  of  a  Parisian  ex- 
porter of  millinery  and  laces.  The  money  received  by  the 
American  cotton  exporter  did  not  come  from  France,  and 
the  money  paid  by  the  New  York  importing  merchant  did 
not  go  to  France. 

If  exports  are  not  thus  balanced  by  commodities  or  by 
services,  the  final  balance  of  a  nation's  credits  over  its 
debits,  as  between  other  nations,  is  settled  by  the  transfer 
of  securities,  and  only  in  times  of  temporary  stress  or  under 
abnormal  conditions  created  by  war  or  panic  is  gold  shipped 
in  great  quantities.  Since  international  trade  is  thus  car- 
ried on  by  a  species  of  barter,  it  is  often  stated  that,  in  the 
long  run,  the  imports  of  a  country  must  balance  its  exports. 
A  more  exact  statement  of  the  law  is  that  exports  and  ser- 
vices rendered  eventually  balance  imports  and  services 
received. 

The  Transfer  of  Gold  and  the  Balance  of  Trade. — It  has 
been  shown  that  an  enormous  favorable  balance  of  trade 
may  be  piled  up  by  a  nation  without  causing  an  influx  of 
gold.  It  may  now  be  of  interest  to  consider  the  position 
of  a  country  that  maintains  a  favorable  balance  of  trade 
throughout  a  long  period  of  years,  without  incurring  other 
Uabihties  than  those  resulting  from  the  importation  of 
commodities.  Supposing  the  United  States  continues  to 
export  each  year  merchandise  greatly  exceeding  in  value  the 
commodities  imported,  and  that  our  citizens  cease  to  travel 
or  live  abroad,  that  our  merchant  marine  is  so  increased  as 
to  carry  all  of  our  imports  and  possibly  a  goodly  share  of 
those  of  other  nations,  that  our  foreign  investments  exceed 
the  sum  total  of  American  securities  held  abroad,  and  that 


THE  BALANCE  OF  TRADE  235 

our  foreign-born  citizens  no  longer  send  millions  of  dollars 
abroad.  We  would  then  be  in  every  sense  a  creditor  na- 
tion, and  would  thus  fulfil  the  ideal  consciously  or  un- 
consciously cherished  by  many  patriotic  citizens.  Other 
nations  would  then  be  obliged  to  settle  the  balance  due  us 
by  the  shipment  of  gold,  unless  our  capitalists  elected  to 
accept  foreign  securities.  If  we  insisted  upon  payment  in 
gold,  and  the  other  nations  acquiesced,  it  would  not  take 
us  long  to  drain  all  the  gold  from  all  the  world,  while  our 
vaults  and  coffers  fairly  bulged  with  the  precious  metals. 
Even  if  other  nations  did  not  take  governmental  action  to 
keep  out,  through  tariff  and  other  discriminations,  our  ex- 
ports, such  a  result  would  be  brought  about  automatically 
in  this  way.  The  excess  of  gold  would  result  in  higher 
prices — the  relative  value  of  dollars  and  commodities 
would  undergo  a  change  whereby  it  would  require  mxore 
dollars  to  buy  a  given  quantity  of  merchandise.  The  home 
market,  then,  would  be  superior  to  the  foreign,  and  domestic 
rather  than  foreign  trade  would  be  sought  by  merchants 
and  manufacturers,  resulting  in  a  decrease  of  exports.  At 
the  same  time,  the  higher  prices  would  prove  an  attraction 
to  foreign  traders,  w^ho  would  flood  our  markets  with  im- 
ports. On  the  one  hand,  then,  exports  would  be  decreased; 
on  the  other,  imports  would  be  increased.  This  would 
continue  until  the  unfavorable  balance  of  trade  created  had 
caused  a  sufficient  outflow  of  the  precious  metals  to  reduce 
their  supply  to  normal  and  likewise  to  restore  prices  to 
normal. 

It  has  been  shown  that  a  continuous  favorable  balance 
of  trade  of  any  magnitude,  which  is  not  offset  by  other  lia- 
bilities, cannot  be  paid  by  the  transfer  of  gold— that  such 
a  transfer  would  inevitably  result  in  creating  such  a  change 
in  prices  as  to  cause  the  imported  gold  to  leave  the  country. 
There  is  another  proof  that  brooks  no  argument,  and  that 
is  that  there  is  not  a  sufficient  quantity  of  gold  in  circula- 
tion in  the  world  to  offset  great  trade  balances.     Such  bal- 


236    FOREIGN  TRADE   OF   UNITED   STATES 

ances  are  never  paid  in  silver.  The  stock  of  gold  in  circu- 
lation in  all  countries  in  1896  was  authoritatively  estimated 
at  $4,144,000,000;  in  1 91 6  it  had  risen,  owing  to  the  un- 
precedented increase  in  the  production  of  gold,  to  $8,000,- 
000,000.  Now,  the  excess  of  exports  over  imports  of  the 
United  States  alone  for  the  thirteen  years  between  1904  and 
1 91 6,  inclusive,  exceeded  this  amount.  There  was  not 
enough  gold  in  circulation  in  the  entire  world  to  pay 
this  entire  balance.  If  such  payment  had  been  attempted, 
the  United  States  would  now  possess  all  the  gold  money  in 
the  world. 

It  is  interesting  to  note  the  total  stocks  of  gold  money 
in  the  leading  countries  of  the  world  for  two  dates  for  which 
careful  estimates  have  been  made  by  financiers  and  statis- 
ticians: 1896  and  191 6.     The  amounts  are  as  follows: 


1916 

1806 

United  States 

$2,230,000,000 
1,384,000,000 
1,058,000,000 
714,000,000 
662,000,000 
336,000,000 
296,000,000 

$672,000,000 
778,000,000 
489,000,000 
675,000,000 
504,000,000 
100,000,000 
167,000,000 

France 

Russia 

Germany 

United  Kingdom 

Italy 

Austria- Hungary 

The  United  Kingdom's  unfavorable  balance  of  trade — 
the  excess  of  her  imports  over  exports — in  the  single  year  of 
1916  amounted  to  $1,679,000,000.  Even  after  her  credits 
for  services  were  deducted  her  balance  of  indebtedness  w^as 
enormous.  But  even  this  abnormal  balance  was  not  liqui- 
dated in  gold;  it  is  evident  that  such  liquidation  could  not 
be  accomplished.  While  the  gold  shipments  of  that  year 
were  unprecedented,  the  greater  part  of  the  debt  was  offset 
by  the  transfer  of  securities.  The  part  securities  play  in 
international  trade  is  touched  upon  in  Henry  Parker 
Willis's  work  on  the  Federal  Reserve  in  the  following  pas- 
sage: 


THE  BALANCE  OF  TRADE  237 

International  trade  is  not  carried  on  upon  a  money  basis,  but  in 
many  countries  payment  for  large  quantities  of  staple  purchases 
is  made  in  the  form  of  securities  based  on  the  enterprises  in  which 
the  goods  thus  bought  are  employed.  For  example,  shipments  of 
steel  rails  to  China  for  the  construction  of  the  railways  of  that 
country  have  been  paid  for  in  bonds  which  have  been  taken  by 
banking  concerns  in  the  coimtry  which  sold  the  rails,  and  then  have 
been  transferred  to  the  investors,  who,  in  the  last  analysis,  supply 
the  money.  Similar  methods  of  financing  have  been  adopted  in 
dealing  with  Brazil,  and  with  other  South  American  countries 
where  trade  grew  up  on  a  basis  of  borrowed  capital.  While  trade 
between  older  nations,  as,  for  example,  France  and  Germany,  is 
not  necessarily  founded  upon  international  loans  of  this  kind,  they 
nevertheless  figure  to  a  considerable  extent. 

Analysis  of  Otir  Trade  Balance. — That  an  excess  of  ex- 
ports does  not  necessarily  result  in  an  influx  of  the  precious 
metals  is  clearly  demonstrated  by  a  brief  review  of  the  for- 
eign trade  of  the  United  States  for  the  decade  from  1900 
to  1909,  inclusive.  In  each  year  of  that  decade  our  ex- 
ports of  merchandise  exceeded  our  unports,  and  yet  in 
the  ten  years  we  parted  with  more  of  the  precious  metals 
than  we  received,  as  is  shown  by  the  following  summary: 


Excess  of  exports  of  merchandise  over  imports. . 
Excess  of  exports  of  precious  metals  over  imports 

Total  excess 

$4,934,000,000 
44,000,000 

$4,978,000,000 

In  the  ten  years  under  consideration,  then,  our  exports 
exceeded  our  imports  by  nearly  $5,000,000,000,  and  yet, 
instead  of  this  resulting  in  an  inflow  of  the  precious  metals, 
we  find  that  our  net  exports  of  the  latter  exceeded  the  im- 
ports by  some  $44,000,000.  We  thus  parted  with  merchan- 
dise and  precious  metals  to  the  value  of  nearly  $5,000,- 
000,000  for  which  we  received  no  compensating  imports. 
That  this  huge  sum  was  not  a  gift  made  by  Americans  to 
foreigners  is  clear.    As  a  matter  of  fact  it  was  necessitated 


22,^    FOREIGN  TRADE   OF  UNITED   STATES 

by  our  obligations  to  other  nations.  It  has  been  shown 
that  even  this  enormous  balance  fell  short  of  the  liabilities 
incurred  abroad,  and  that  American  securities  valued  at 
many  millions  of  dollars  were  transferred  to  foreigners  to 
liquidate  the  balance  still  due. 

The  eminent  statistician  Sir  George  Paish  made  in 
1909  an  exhaustive  analysis  of  the  trade  balance  of  the 
United  States,  in  which  he  estimated  the  obligations  for 
interest,  tourist  expenditures,  remittances  by  foreigners 
to  relatives  and  friends,  and  freight  charges  paid  foreign 
carriers  for  the  fiscal  year  1909,  as  follows: 


Interest  on  American  securities  held  abroad 

Tourist  expenditures 

$250,000,000 

170,000,000 

150,000,000 

25,000,000 

Remittances  to  relatives,  etc 

Freight  on  imports 

Total  obligations  other  than  for  imports .  .  . 

$595,000,000 

The  excess  of  our  exports  of  merchandise  over  our  im- 
ports in  that  year  was  $410,347,000.  This  fell  $184,000,000 
short  of  meeting  the  obligations  set  forth  above.  It  was 
taken  up  by  the  transfer  of  American  securities. 

Let  us  consider  now  a  decade  belonging  to  the  period 
when  our  imports  uniformly  exceeded  our  exports  in  value. 
Our  imports  showed  a  surplus  over  our  exports  in  the  period 
between  1831  and  1840  of  nearly  $160,000,000,  but  this  was 
not  accompanied  by  an  outflow  of  specie.  On  the  contrary, 
the  imports  of  the  precious  metals  likewise  exceeded  the 
exports,  so  that  an  addition  to  our  stock  of  specie  aggre- 
gating over  $50,600,000  resulted.  This  inflow  of  specie 
was  directly  due  to  the  sale  of  state  securities  in  foreign 
countries;  that  the  inflow  did  not  result  from  our  trade 
balance  is  evident,  for  that  was  decidedly  against  us.  If 
an  excess  of  imports  inevitably  caused  an  outflow  of  gold 
and  silver,  it  can  be  readily  seen  that  our  stock  of  specie 


THE  BALANCE  OF  TRADE  239 

would  have  been  decreased  in  the  period  instead  of  being 
increased. 

Equilibrium  in  Foreign  Trade. — The  fact  becomes  clear, 
then,  that  imports  may  or  may  not  balance  exports,  de- 
pending entirely  upon  other  factors  entering  into  interna- 
tional transactions,  and  that  an  excess  of  either  imports 
or  of  exports  does  not  necessarily  cause  any  change  in  the 
supply  of  specie.  When  the  precious  metals  possessed  by 
a  country,  or  that  portion  of  them  used  as  money,  remains 
practically  stationary,  the  foreign  trade  is  said  to  be  in  a 
state  of  equilibrium.  The  economist  Cairnes  thus  explains 
the  conditions  necessary  to  the  maintenance  of  interna- 
tional equilibrium : 

The  state  of  international  demand  which  results  in  commercial 
equilibrium  is  realized  when  the  reciprocal  demand  of  trading 
countries  produces  such  a  relation  of  imports  and  exports  among 
them  as  enables  each  country  by  means  of  her  exports  to  discharge 
all  her  foreign  liabiHties— a  position  from  which  the  following  corol- 
lary may  be  deduced,  that  all  payments,  due  from  one  country  to 
another  or  to  other  countries  on  other  accounts  than  that  of  im- 
ports, of  a  permanent  character — for  example,  an  annual  tribute, 
interest  on  borrowed  capital,  dividends  on  stock,  and  so  forth — 
and  in  excess  of  similar  payments  due  from  these  latter  to  the  former, 
will  be  represented  in  the  foreign  trade  of  that  country  by  an  ex- 
cess of  exports  over  imports;  while,  conversely,  an  excess  of  pay- 
ments to  be  received  over  payments  due  will  find  its  commercial 
expression  in  an  excess  of  imports  over  exports.  ...  If  a  country 
has  been  a  large  borrower  of  foreign  capital,  and  so  is  indebted  to 
foreign  nations  in  annual  interest,  or  if,  again,  her  people  are  much 
given  to  travelling  in  foreign  countries,  and  so  have  occasion  to 
remit  annually  large  sums  abroad  for  which  no  return  is  required, 
under  such  circumstances  her  exports  will  tend  to  exceed  her  im- 
ports; while,  under  an  opposite  state  of  things,  that  is  to  say,  if  a 
country  has  been  a  large  foreign  lender,  or  if  it  be  the  scene  of  travel 
for  the  inhabitants  of  other  countries— the  imports  will  tend  to 
exceed  the  exports. 

Two  Classes  of  Nations  in  International  Trade. — It  is 
clear  that  there  are  two  distinct  classes  of  nations  in  rela- 


240    FOREIGN   TRADE   OF   UNITED    STATES 

tion  to  the  balance  of  trade.  The  first  includes  those  na- 
tions whose  imports,  throughout  long  periods,  exceed  their 
exports;  the  second  is  made  up  of  nations  whose  exports 
regularly  exceed  their  imports  in  value.  Countries  whose 
imports  are  in  excess  of  their  exports  fall  into  two  divisions : 
(i)  creditor  or  capitalistic  countries,  and  (2)  borrowing  or 
developing  countries.  It  happens  that  creditor  countries 
usually  have  great  merchant  marines  and  so  have  large 
sums  to  their  credit  earned  in  the  carrying  trade,  and  that, 
being  old  countries  rich  in  historic  associations,  they  almost 
invariably  attract  many  tourists,  which  fact  adds  to  their 
ability  to  discharge  their  debts  without  parting  with  an 
excess  of  commodities.  Thus,  the  interest  on  foreign  in- 
vestments, combined  with  services  of  various  kinds,  serve 
in  lieu  of  exported  commodities  for  the  payment  of  a  share 
of  their  imports.  Consequently,  such  nations  can  each 
year  obtain  imports  exceeding  in  value  their  total  exports. 
Surely  such  a  condition  is  far  from  unfavorable,  though 
the  balance  of  trade  is  so  designated. 

Borrowing  or  developing  countries  resemble  creditor  or 
capitalistic  countries  in  having  an  excess  of  imports  dur- 
ing the  period  in  which  the  borrowing  is  in  progress.  A 
large  part  of  the  capital  borrowed  by  such  countries  is  for 
the  purpose  of  making  internal  improvements,  such  as 
railroads,  harbors,  power-plants;  another  large  share  of 
it  goes  to  developing  farms,  mines,  and  other  natural  re- 
sources. Material  needed  for  such  work  is  imported,  a 
large  part  of  it  from  the  lending  country,  and  it  is  the  im- 
portation of  this  material  that  causes  the  excess  of  im- 
ports. It  is  to  be  noted  that  while  the  loans  are  being  made 
and  the  material  purchased  thereby  is  being  forwarded,  the 
exports  of  the  lending  countries  are  enhanced,  but  just  as 
soon  as  interest  is  collected  the  opposite  is  the  case. 

Countries  v/hose  exports  exceed  their  imports  likewise 
fall  into  two  divisions:  (i)  lending  countries  that  are  en- 
gaged in  financing  the  operations  of  other  countries,  and  (2) 


THE  BALANCE  OF  TRADE  241 

debtor  countries  that  are  repaying  loans  previously  se- 
cured. Countries  possessing  such  an  abundance  of  wealth 
that  their  exports  consistently  exceed  not  only  their  im- 
ports, but  also  their  total  Habilities  of  all  kinds  to  other 
nations,  customarily  receive  for  the  net  balance  due  them 
either  foreign  securities  or  the  title  to  foreign  properties. 
Such  lending  countries  loan  their  capital  not  in  the  form 
of  money,  but  in  the  form  of  commodities;  only  rarely  do 
foreign  loans  actually  leave  a  country  in  the  form  of  specie. 
Our  surplus  exports  to  the  United  Kingdom  during  the 
World  War  enabled  us  to  obtain  valuable  securities, 
which  may  be  considered  as  promises  of  future  payment. 
WTiile  many  of  these  were  our  own  securities  which  had 
been  owned  by  EngHshmen,  those  of  other  nations  were 
also  obtained.  The  period  during  which  a  country's  ex- 
ports exceeds  its  imports  because  of  its  activity  in  financing 
foreign  enterprises  is  usually  brief.  Unless  the  resources 
of  such  a  country  are  practically  unlimited,  the  time  will 
soon  come  when  the  interest  on  foreign  investments  ex- 
ceeds the  amount  of  outside  loans  made  each  year.  As 
soon  as  this  condition  maintains,  the  lending  country  be- 
comes a  creditor  or  capitaHstic  country,  w^hich  obtains  a 
surplus  of  imports  annually  from  the  countries  paying  inter- 
est or  refunding  loans.  Thus  we  see  that  there  is  a  process 
of  evolution  continually  going  on  among  nations,  whereby 
each  "country  passes  through  four  stages,  as  follows: 

1.  The    borrowing    period,    with    imports    exceeding 
exports. 

2.  The  interest-paying  period,  with  excess  of  exports. 

3.  The  loaning  period,  with  excess  of  exports. 

4.  The  interest-drawing  period,  with  imports  exceeding 
exports. 

Present  Position  of  the  United  States.— The  United 
States  remained  in  the  borrowing  stage  until  the  late 
seventies,  the  amount  of  capital  imported  annually  exceed- 


242     FOREIGN  TRADE   OF   UNITED    STATES 

ing  the  interest  on  capital  previously  borrowed,  thus  caus- 
ing an  excess  of  imports.  Then  our  productivity  became 
so  great  that  we  were  enabled  to  send  out  such  vast  quanti- 
ties of  foodstuffs  and  raw  materials,  as  well  as  of  manu- 
factures, as  to  create  an  excess  of  exports  so  large  as  to 
pay  all  interest  charges  and  other  obligations,  and  even,  in 
some  years,  to  cancel  a  part  of  our  debtsr  abroad.  At  the 
outbreak  of  the  World  War  in  19 14,  it  is  estimated  that 
our  securities  to  the  value  of  $4,000,000,000  were  held  in  the 
United  Kingdom,  Germany,  France,  and  i«n  other  European 
countries.  Our  position  was  such  that  we  were  enabled 
to  so  increase  our  exports  as  to  purchase  back  all  of  our 
securities  held  abroad  that  we  could  obtain,  and  also  to 
invest  heavily  in  foreign  securities.  The  stoppage  of  our 
tourists'  expenditures  and  of  a  large  part  of  the  commis- 
sions we  had  formerly  been  in  the  habit  of  paying  to  Lon- 
don and  other  bankers  for  financing  our  foreign  trade  were 
other  factors  that  combined  to  convert  us  in  a  few  months 
from  a  debtor  to  a  creditor  nation.  Our  interest  and  debt- 
paying  period  was  thus  of  much  shorter  duration  than  it 
w^ould  have  been  under  normal  conditions. 

The  tremendous  volume  of  exports  in  191 5  and  1916, 
coupled  with  the  unprecedented  rise  in  prices,  affecting 
practically  every  commodity  entering  international  trade, 
created  such  an  astounding  balance  in  our  favor — our  total 
credits  enormously  exceeding  our  liabilities — that  the  im- 
portation of  gold  in  great  quantities  followed.  The  condi- 
tions prevailing  in  191 6  were  thus  summarized  in  a  publica- 
tion of  the  National  City  Bank  in  February,  1917: 

The  balance  in  favor  of  the  United  States  in  foreign  trade,  in- 
cluding exports  and  imports  of  silver,  for  the  calendar  year  1916, 
was  $3,127,516,344.  Merchandise  imports  increased  $620,000,- 
000  and  merchandise  exports  $1,939,000,000  over  the  calendar 
year  191 5,  when  the  balance  was  $1,795,189,082.  .  .  .  Foreign 
loans  excluding  renewals  were  placed  in  this  country  during  the 
year  to  the  amount  of  $1,217,464,764.     The  net  importation  of 


THE  BALANCE  OF  TRADE  243 

gold  was  $529,951,671.  According  to  the  definite  records,  there 
remained  about  $1,380,099,909  to  be  settled  otherwise.  The  in- 
terest and  dividend  payments  upon  American  securities  held 
abroad  are  a  smaller  factor  than  formerly,  and  offset  more  or  less 
completely  by  similar  items  coming  to  us  on  account  of  foreign  se- 
curities now  held  in  this  country.  The  earnings  of  foreign  shipping 
have  been  very  large  during  the  past  year,  and  we  have  had  to 
settle  for  the  freights  on  imports.  Remittances  to  friends  have 
probably  amounted  to  an  important  sum,  but  there  is  Httle  available 
basis  for  an  estimate,  American  banks  have  probably  increased 
their  balances  or  loans  in  London  during  the  year,  but  the  chief 
element  in  balancing  the  account  has  undoubtedly  been  the  sale  in 
this  market  of  American  securities  for  foreign  owners. 

The  United  States,  then,  in  1916  became  a  loaning  nation. 
For  the  first  time  in  our  history  our  excess  of  exports  more 
than  offset  our  HabiHties,  and  created  for  us  a  credit  which 
v/as  embodied  in  foreign  securities.  The  still  larger  credit 
balances  of  191 7  and  1918  and  191 9  definitely  established 
the  United  States  as  a  creditor  nation.  An  article  pub- 
lished in  November,  1918,  thus  sums  up  the  situation: 

The  war  has  turned  the  United  States  from  a  debtor  to  a  creditor 
nation.  Formerly  we  owed  abroad  something  Hke  $4,000,000,000, 
about  three-fourths  of  which  sum  we  have  bought  back.  Moreover, 
Europe  now  owes  us  about  $9,000,000,000 — on  private  account 
about  $2,000,000,000  in  securities,  in  United  States  Government 
obligations  over  $7,000,000,000.  The  world  is  under  obligations 
to  us  in  interest  alone  of  between  $400,000,000  and  $500,000,000 
a  year.  We  must  add  to  this  not  only  our  usual  credit  balance  in 
world  trade,  but  the  fact  that  for  several  years  our  manufacturers 
and  exports  will  be  stimulated  by  the  demand  for  goods  in  the  re- 
habilitation of  Europe.  For  years  to  come  we  will  be  able  to  count 
on  an  annual  credit  balance  of  from  $1,500,000,000  to  $2,000,000,000. 
That  annual  indebtedness  Europe  cannot  possibly  settle,  so  that 
we  shall  have  to  leave  our  money  abroad,  invested  in  foreign  se- 
curities or  otherwise  participating  in  foreign  industries,  all  of  which 
will  continue  to  build  up  our  credit  position  in  world  finance.  The 
war  has  placed  us  in  the  same  position  England  was  in,  an  excep- 
tional credit  position  which  gave  her  control  of  world  finance."^ 

*  Literary  Digest,  November  23,  1918.  Summary  of  article  in  Wall 
Street  Journal. 


244    FOREIGN  TRADE   OF   UNITED   STATES 

It  is  thus  clear  why  bankers  and  others  interested  in  the 
financing  of  foreign  trade  are  recommending  foreign  invest- 
ments to  the  American  public.  It  is  upon  the  response  to 
this  appeal  that  the  continued  excess  of  our  exports  over 
imports  depends.  The  only  alternative  is  for  the  United 
States  to  cease  to  reach  out  for  foreign  trade,  being  content 
to  sell  abroad  those  raw  materials  and  foodstuffs  the  world 
must  obtain  from  us,  and  only  such  manufactures  as  find  a 
ready  market  with  little  competition. 

BIBLIOGRAPHY 

Atwood,  a.  W.  Paying  Of  the  Mortgage  on  the  United  States  ; 
How  We  Got  Five  Billions  Deep  into  Europe's  Debt.  World's 
Work,  vol.  33,  pp.  243-250,  June,  1917. 

Berglund,  a.  Our  Trade  Balance  and  Our  Foreign  Loans.  Jour- 
nal of  Political  Economy,  vol.  26,  pp.  732-743^  July,  1918. 

Brooks,  S.  What  the  War  Has  Done  for  America.  Fortnightly 
Review,  vol.  no,  pp.  700-714,  November,  1918. 

Clausen,  John.  New  Era  of  American  International  Trade  and 
Finance.  Bulletin  Pan-American  Union,  vol.  46,  pp.  74-78, 
January,  1918. 

GiBBiNS,  H.  DE  B.     The  Economics  of  Commerce.    London,  1894. 

Gilchrist,  C.  A.  75  a  Balance  of  Trade  in  Favor  of  Exports  Favor- 
able?   Scientific  Monthly,  vol.  3,  pp.  66-76,  July,  1916. 

HoBSON,  C.  K.     The  Export  of  Capital.     Chap.  7.     London,  1914. 

NoTZ,  William.  Export  Trade  Problems  and  an  American  For- 
eign Trade  Policy.  Journal  Political  Economy,  vol.  26,  pp. 
105-124,  February,  191 8. 

Paish,  George.  The  Trade  Balance  of  the  United  States.  In  U.  S. 
Congress,  6ist  Congress,  2d  session,  Senate  document  no.  579. 
1910. 

Peddie,  J.  T.  On  the  Relation  of  Imports  to  Exports.  New  York, 
1916. 


CHAPTER  XIX 
GOVERNMENT  AID  TO  FOREIGN  TRADE 

Natiire  of  Assistance. — Every  nation  that  has  built  up 
an  extensive  foreign  trade  has  developed  a  more  or  less 
thoroughgoing  system  of  government  assistance  for  its 
merchants  and  manufacturers  who  are  engaged  either  in 
exporting  or  importing.  In  the  United  States,  two  depart- 
ments of  the  federal  government  co-operate  in  foreign  trade 
promotion.  These  are  the  Department  of  State  and  the 
Department  of  Commerce. 

The  Department  of  State  works  through  its  diplomatic 
representatives  and  through  its  consular  officers,  who  are 
stationed  in  every  country  of  the  world.  It  also  makes 
every  effort  to  secure  advantageous  commercial  treaties 
with  other  countries,  which  enable  Americans  to  trade 
on  favorable  terms  with  other  nations. 

The  Department  of  Conamerce,  through  the  Bureau  of 
Foreign  and  Domestic  Commerce,  and  in  co-operation  with 
the  Department  of  State,  gathers  information  in  regard 
to  trade  conditions,  trade  opportunities,  and  kindred  sub- 
jects. This  trade  information  is  collected  and  forwarded 
by  United  States  consuls,  commercial  agents,  and  commer- 
cial attaches.  It  is  then  edited  and  pubHshed  by  the 
Bureau  of  Foreign  and  Domestic  Commerce,  and  dis- 
seminated to  those  interested. 

The  Consular  Service  of  the  United  States.— Prior  to 
1906  the  appointments  to  the  consular  service  were  governed 
largely  by  the  political  influence  of  the  candidates,  the  fit- 
ness and  training  of  the  applicant  being  secondary  con- 
siderations.    The  result  was  that  very  little  effort  was  made 

24s 


246    FOREIGN  TRADE   OF   UNITED   STATES 

by  members  of  the  semce  to  gather  trade  data  or  otherwise 
promote  the  foreign  trade  of  the  nation  in  any  systematic 
way.  As  our  foreign  trade  increased  in  volume  and  im- 
portance, the  business  organizations  of  the  country  began 
to  demand  improvements  in  the  consular  service  which 
would  place  it  on  an  equaUty  with  that  of  other  progressive 
commercial  nations.  An  act  passed  in  1906,  followed  by 
an  executive  order  of  the  President,  provided  that  con- 
suls-general and  consuls  of  the  first  seven  classes  were  to 
be  drawn  from  persons  already  in  the  consular  service  or 
already  in  the  employment  of  the  State  Departlment, 
and  that  appointments  to  the  two  lower  grades  (eight  and 
nine)  were  to  be  made  from  those  appHcants  who  had  passed 
an  examination  to  be  provided,  preference  being  given  to 
consular  assistants  and  others  already  in  the  service.  This 
at  once  placed  the  corps  of  consular  officers  on  a  merit 
basis  and  made  the  tenure  of  office  no  longer  dependent 
upon  the  poUtical  affiliation  or  influence  of  the  occupant. 

The  consular  examination  provided  for  the  two  lower 
classes  of  the  consular  service  consists  of  two  parts,  the 
oral  and  the  written.  There  is  also  a  physical  examination. 
The  oral  examination  has  for  its  purpose  the  determining 
of  the  personal  qualifications  of  the  candidate.  The  writ- 
ten examination  includes  one  modern  language  other  than 
EngHsh;  international,  maritime,  and  commercial  law; 
political  and  commercial  geography;  arithmetic;  natural, 
industrial,  and  commercial  resources  and  commerce  of  the 
United  States;  American  history,  government,  and  insti- 
tutions; modern  European,  South  American,  and  Far 
Eastern  history;  and  political  economy.  Candidates 
who  pass  this  examination  creditably  are  entitled  to  have 
their  names  certified  by  the  board  of  examiners  to  the 
secretary  of  state  as  eUgible  for  appointment.  The  names 
of  candidates  remain  on  the  eligible  Hst  for  two  years, 
unless  they  are  withdrawn  or  appointment  to  the  service 
is  made  before  the  expiration  of  that  period.    These  ex- 


GOVERNMENT  AID  TO  FOREIGN  TRADE     247 

aminations,  it  is  to  be  noted,  are  open  only  to  such  can- 
didates as  the  President  shall  have  designated  for  ex- 
amination. 

The  consular  service  in  191 9  included  4  consuls-general 
at  large,  57  consuls-general,  and  241  consuls.  The  ser- 
vice is  divided  into  9  classes,  with  salaries  ranging  from 
$2,000  to  $8,000  per  year.  The  general  super\ision  of  the 
consular  service  is  under  a  director,  who  acts  subject  to 
the  secretary  of  state.  Assistant  consuls  and  interpreters 
are  also  provided.  Consuls-general  have  supervisory  pow- 
ers over  the  other  consuls  located  in  their  districts. 

Consuls  are  business  or  commercial  agents  of  the  govern- 
ment, and  not  political  agents  as  are  diplomatic  representa- 
tives. While  their  most  important  function  has  come  to 
be  the  promotion  of  trade,  this  is  not  their  only  duty.  They 
must  certify  to  the  correctness  of  invoices  of  goods  exported 
to  the  United  States,  and  are  expected  to  make  themselves 
so  famiHar  with  prices  and  products  that  they  can  detect 
any  undervaluation  that  may  be  attempted;  they  are  re- 
quired to  attend  to  the  issuance  of  bills  of  health,  stating 
that  vessels  leaving  for  United  States  ports  have  compUed 
with  the  quarantine  and  other  health  regulations  and  that 
there  is  no  plague  or  epidemic  at  the  port  of  departure. 
Inspection  of  vessels  and  other  investigations  are  some- 
times necessary  on  the  part  of  the  consul  before  he  can  as- 
certain the  facts  that  he  must  know  before  he  can  issue  such 
a  bill  of  health.  Consuls  are  also  charged  wdth  numerous 
special  duties  in  regard  to  American  vessels  and  American 
seamen  that  may  come  within  their  jurisdiction;  they  like- 
wise are  intrusted  with  the  task  of  aiding  in  the  enforcement 
of  the  immigration  laws  of  the  United  States  by  endeavor- 
ing to  prevent  the  departure  for  the  United  States  of  im- 
migrants classed  as  undesirable  and  of  those  excluded  by 
law.  They  also  have  many  duties  to  perform  in  regard  to 
the  registration  and  protection  of  American  citizens  resid- 
ing or  travelling  in  their  districts,  and  are  required  to 


248    FOREIGN  TRADE  OF  UNITED   STATES 

administer  the  estates,  under  certain  conditions,  of  Ameri- 
can citizens  dying  abroad. 

Despite  the  multiplicity  of  duties  devolving  upon  con- 
suls, they,  nevertheless,  are  able  to  perform  a  vast  amount 
of  valuable  services  for  the  commercial  interests  of  the 
country.  Van  Dyne,  in  his  work  entitled  Our  Consular 
Service,  says:  "By  far  the  most  important  function  of 
our  consuls  at  the  present  time  is  the  promotion  of  our  for- 
eign trade.  This  branch  of  the  work  has  been  so  greatly 
developed  that  our  consular  service  to-day  constitutes  a 
vast  reporting  system  covering  the  entire  world,  with  a 
central  bureau  of  information  at  Washington.  The  con- 
suls are  the  news-gatherers  and  reporters,  ever  on  the  look- 
out for  information  of  interest  to  the  American  business 
public.  The  editors  and  publishers  are  the  Departments 
of  State  and  Commerce.  .  .  ." 

That  the  principal  business  of  American  consuls  is  to 
take  care  of  the  commercial  interests  of  their  countr3anen 
is  well  understood,  but  the  exact  nature  of  their  work  is 
not  so  easily  grasped.  In  the  words  of  Foreign  Trade 
Adviser  William  B.  Fleming  of  the  Department  of  State, 
"they  make  careful  studies  and  critical  analyses  of  our  im- 
port and  export  trade  in  their  several  districts.  They 
search  out  the  resources,  industries,  and  commerce  in  their 
several  fields.  They  report  the  possibilities  of  business  and 
trade  opportunities  and  obstacles  in  the  way  of  the  expan- 
sion of  American  trade,  and  suggest  the  means  of  over- 
coming these  obstacles.  They  make  a  study  of  the  cus- 
toms tariffs  and  customs  regulations  of  the  country  in 
which  they  are  stationed  and  the  effect  of  these  on  American 
trade,  and  transmit  copies  of  these  laws  and  regulations  and 
the  amendments  thereto.  They  report  all  cases  of  dis- 
crimination against  American  interests,  how  tliis  discrimina- 
tion is  effected  and  the  policies  upon  which  the  discrimina- 
tion is  based.  They  also  study  and  report  on  freight  rates, 
of  railways,  canals,  and  oceans,  also  on  the  bounties  given 


GOVERNMENT  AID  TO  FOREIGN  TRADE    249 

by  foreign  nations.  They  also  report  on  wages  of  labor 
and  other  items  of  the  cost  of  manufacture  of  products, 
and  the  prices  at  which  manufactured  products  are  sold  for 
domestic  use.  They  work  in  co-operation  with  the  American 
ministers  and  ambassadors  and  assist  these  officers  of  the 
government  in  commercial  matters  and  in  the  effort  to  cor- 
rect erroneous  customs  charges  and  to  prevent  imdue  de- 
tention of  goods  and  ships.  Tradition  has  long  given  to 
the  consuls  a  certain  prestige  which  affords  them  an  open 
door  to  the  sources  of  information — doors  which  are  not 
accessible  to  purely  commercial  agents." 

This  service  ''affords  information,  offers  advice,  broadens 
opportunity,  secures  equality  of  treatment,  suggests  in- 
itiative, and  inspires  confidence  in  multifarious  enterprises 
in  foreign  countries  that  would  not  and  could  not  be 
undertaken  by  our  citizens  if  such  governmental  service 
did  not  exist.  It  points  the  way  of  opportunity,  but  leaves 
the  detail  of  execution  to  the  ability  and  willingness  of  the 
beneficiary  private  interests."  The  efficiency  of  our  con- 
sular service  is  now  recognized  as  being  equal  or  superior 
to  that  of  any  other  nation. 

Consular  Reports. — The  trade  information  obtained  by 
consuls  is  forwarded  to  Washington,  where  it  is  edited  and 
published  under  the  direction  of  the  Bureau  of  Foreign  and 
Domestic  Commerce.  The  consular  reports  thus  pub- 
lished are  the  following: 

1.  Commercial  Relations.    Annual. 

2.  Monthly  Consular  Reports. 

3.  Daily  Consular  Reports. 

4.  Confidential  Trade  Opportunities  Reports, 

5.  Reports  on  Foreign  Trade  Restrictions. 

6.  Special  Consular  Reports. 

I.  The  annual  publication  known  as  Commercial  Rela- 
tions contains  a  somewhat  detailed  description  of  the  im- 
ports and  exports,  improvements  in  transportation  facili- 


2  50    FOREIGN  TRADE   OF  UNITED   STATES 

tics,  development  of  new  industries  and  growth  in  old  ones 
in  the  country  in  which  the  consul  is  stationed,  with  def- 
inite suggestions  for  the  extension  of  the  trade  of  United 
States  exporters  in  specific  lines. 

2.  Monthly  Consular  Reports. — The  nature  of  these 
reports  is  indicated  in  the  directions  issued  to  consuls 
when  the  pubHcation  was  begun  in  1880.  They  were  in- 
structed ''to  prepare  reports  on  all  subjects  which  may  be 
calculated  to  advance  the  commercial  and  industrial  in- 
terest of  the  United  States"  and  to  make  the  information 
given  ''expHcit  and  comprehensive,  so  that  our  merchants, 
manufacturers,  agriculturalists,  exporters,  and  importers 
shall  fully  understand  the  pecuHarities,  wants,  and  require- 
ments of  the  several  markets,  as  well  as  the  best  methods  of 
reaching  the  same." 

3.  Daily  Consular  Reports. — Since  1898  those  portions 
of  the  reports  of  consuls  containing  information  that  re- 
quires quick  action  has  been  issued  daily.  Whenever  some 
important  trade  development  is  to  be  reported,  the  consuls 
are  instructed  to  make  use  of  the  cable  to  inform  the  State 
Department.  If  this  is  of  interest  to  a  large  body  of  those 
engaged  in  foreign  trade,  it  is  published  in  the  Daily  Re- 
ports. If  it  concerns  only  a  few  interests,  it  is  privately 
transmitted  to  them.  Daily  Reports  are  distributed  free 
to  firms  and  associations  interested. 

4.  Confidential  Trade  Opportunities  Reports. — These,  as 
just  explained,  contain  information  in  regard  to  trade  oppor- 
tunities that  are  of  interest  only  to  a  few  firms  or  to  a  re- 
stricted number  of  firms;  hence,  they  are  conveyed  directly 
to  them,  instead  of  being  published  in  the  Daily  Reports. 

5.  Reports  on  Foreign  Trade  Restrictions. — These  are 
issued  as  the  information  is  obtained  from  time  to  time. 
They  contain  specific  information  on  foreign  customs  reg- 
ulations and  tariff  laws,  foreign  laws  in  regard  to  the  im- 
portation of  foods  affected  by  pure  food  laws,  etc.,  and  for- 
eign patent  and  trademark  laws. 


GOVERNMENT  AID   TO   FOREIGN  TRADE     251 

6.  Special  Consular  Reports. — These  embrace  a  wide 
range  of  subjects.  ''Some  present  a  survey  of  the  entire 
world's  markets  for  certain  lines  of  goods;  others  contain  an 
intensive  study  of  particular  fields  and  particular  lines; 
still  others  furnish  a  general  study  of  some  country  or 
groups  of  countries."  They  are  usually  made  up  of  re- 
ports on  the  subject  in  hand  from  many  consuls,  though  this 
is  not  always  the  case.  An  excellent  example  is  the  book- 
let entitled  Export  Trade  Suggestions,  which  contains  ex- 
tracts from  the  reports  of  various  consuls  and  data  from 
other  sources. 

Other  Consular  Aid  to  Exporters. — While  the  aid  af- 
forded American  exporters  by  the  comprehensive  reports 
concerning  foreign  markets  and  foreign  business  conditions 
is  of  the  greatest  importance,  it  is  not  the  only  assistance 
consuls  furnish.  They  are  always  ready  to  answer  per- 
sonal letters  in  regard  to  the  best  methods  of  introducing 
an  article  into  their  district,  to  give  specific  information  as 
to  the  tastes,  buying  power,  customs,  and  usages  of  the  peo- 
ple where  they  are  living,  to  make  suggestions  as  to  pack- 
ing of  goods,  the  extension  of  credit,  the  collection  of  ac- 
counts, and  scores  of  other  subjects,  though  it  is  urged  that 
those  seeking  specific  information  upon  any  such  subject 
for  a  particular  district  first  write  to  the  Bureau  of  Foreign 
and  Domestic  Commerce  to  ascertain  if  it  is  already  on 
file,  thus  avoiding  unnecessary  duplication  of  reports  on  the 
part  of  consuls.  American  commercial  travellers  invaria- 
bly receive  valuable  assistance  from  the  consular  officers. 
They  are,  when  properly  accredited,  given  introductions 
to  leading  business  men  and  firms,  informed  as  to  trade 
conditions  in  their  particular  lines,  and  given  pointers  as 
to  local  idiosyncrasies  that  often  result  in  success  where 
otherwise  no  headway  could  have  been  made. 

The  information  that  consuls  make  it  their  business  to 
obtain  and  pass  on,  either  in  the  reports  mentioned  or  to 
indi\ddual  exporters  making  inquiry,  includes  such  details 


252    FOREIGN  TRADE   OF   UNITED   STATES 

as  local  customs  as  to  the  widths  of  fabrics  demanded  or 
preferred  by  the  buying  public,  the  colors  and  patterns 
most  in  favor,  the  popular  grades  and  brands  of  various 
articles,  the  wrappings  that  please,  the  trade-marks  that 
have  the  strongest  appeal,  the  trend  of  styles  in  clothing, 
fabrics,  house  furnishings,  and  many  other  articles,  the 
climatic  eflfect  on  certain  foodstuffs  and  on  colors  and 
materials,  and  a  thousand  other  details.  The  exporter 
entering  a  new  field  thus  finds  available  a  vast  fund  of 
information  that  he  could  obtain  otherwise  only  by  long 
and  costly  investigation  and  experience. 

Consular  Aid  to  Importers. — While  the  assistance  given 
by  the  consular  service  is  more  varied  in  the  case  of  ex- 
porters than  of  importers,  there  are  certain  ways  in  which 
consular  aid  is  extended  to  importers.  In  the  first  place, 
the  consular  reports  keep  the  American  importer  in  con- 
stant touch  with  conditions  in  foreign  markets,  so  that  he  is 
enabled  to  buy  in  the  most  favorable  market,  and  to  take 
advantage  of  every  fluctuation  in  exchange  or  other  con- 
dition that  may  work  to  his  advantage.  Secondly,  con- 
suls co-operate  with  buyers  for  American  importing  houses 
sent  to  purchase  goods  in  foreign  markets.  The  consul's 
intimate  knowledge  of  the  market  conditions  of  his  dis- 
trict often  results  in  the  American  buyer  securing  goods  on 
a  more  favorable  basis  than  would  otherwise  be  the  case. 
Third,  consuls  endeavor  to  prevent  customs  frauds  through 
undervaluations  placed  on  goods  shipped  to  America. 
At  first,  this  seems  to  be  a  disadvantage  to  the  importer, 
but  it  often  works  to  his  advantage.  This  is  because  great 
quantities  of  merchandise  are  exported  to  the  United  States 
by  foreign  firms,  who  either  send  it  to  their  branch  estabhsh- 
ments  in  America  or  consign  it  to  a  commission  house.  In 
either  case,  by  undervaluing  the  goods  and  thus  reducing 
the  tariff  charges,  such  firms  would  be  enabled  to  place  their 
wares  on  the  American  market  at  a  lower  price  than  those 
imported  direct  by  an  American  firm.     In  the  past  this  has 


GOVERNMENT  AID   TO  FOREIGN  TRADE     253 

been  done  quite  extensively,  but  consuls  are  now  exercising 
great  care  to  see  that  all  goods  destined  for  the  United 
States  are  correctly  valued.  The  requirement  as  to  the  tak- 
ing out  of  a  consular  invoice  for  all  goods  exceeding  $100 
in  value  to  be  imported  into  the  United  States  is  an  effec- 
tive means  for  preventing  undervaluations  and  other  cus- 
toms frauds,  though  these  have  not  as  yet  been  entirely 
stamped  out. 

Publications  of  the  Bureau  of  Foreign  and  Domestic 
Commerce. — In  addition  to  the  editing  and  publishing  of 
the  consular  reports,  the  Bureau  of  Foreign  and  Domestic 
Commerce  publishes  a  Statistical  Abstract  of  the  United 
States,  which  contains  valuable  statistics  of  the  commerce, 
production,  industries,  population,  finance,  currency,  and 
wealth  of  the  nation,  as  well  as  a  summary  of  the  commerce 
of  principal  foreign  countries.  Another  pubhcation  is 
known  as  Commerce  and  Navigation,  which  gives  a  de- 
tailed statement  of  the  quantity  and  value  of  the  exports 
and  imports  with  the  countries  to  which  each  article  or 
class  of  articles  was  exported  and  the  countries  from  which 
each  article  or  class  of  articles  was  imported  during  a  five- 
year  period.  Trade  directories  are  also  pubHshed  from 
time  to  time.  The  World  Trade  Directory  issued  in  191 1 
gave  a  complete  list  of  importers  in  all  parts  of  the  world; 
it  is  now  out  of  print,  but  may  be  consulted  at  the  district 
ofl&ces  of  the  bureau.  Other  trade  directories  are  now  in 
course  of  preparation.  The  district  offices  of  the  bureau 
referred  to  are  at  present  located  in  New  York,  Boston, 
Chicago,  St.  Louis,  Atlanta,  New  Orleans,  San  Francisco, 
and  Seattle.  They  distribute  the  pubHcations  of  the 
bureau  and  co-operate  with  it  in  the  promotion  of  foreign 
trade. 

Special  Agents  of  the  Department  of  Commerce. — The 
Bureau  of  Foreign  and  Domestic  Commerce  maintains  a 
staff  of  commercial  attaches,  now  ten  in  nmnber,  who  are 
stationed  in  the  principal  commercial  countries,  and  de- 


254    FOREIGN   TRADE   OF   UNITED   STATES 

vote  their  entire  time  to  tlie  study  of  commercial  and  in- 
dustrial conditions  as  they  affect  the  trade  relations  of  the 
United  States.  These  attaches  observe  the  organization 
of  commerce  and  industry  in  the  respective  countries  in 
which  they  are  stationed,  and  make  suggestions  and 
recommendations  looking  to  the  adoption  of  improved 
methods  by  American  finns  that  will  enable  them  to  com- 
pete more  successfully  with  foreign  firms.  They  devote 
their  entire  time  to  the  promotion  of  commerce,  having  no 
other  duties  to  perform. 

There  is  also  a  corps  of  commercial  agents,  referred  to  as 
"travelling  field  agents,"  attached  to  the  bureau.  The 
commercial  agent  visits  certain  foreign  markets  and  makes 
an  intensive  study  of  certain  conditions  along  specific  lines, 
such  as  the  requirements  of  the  shoe  and  leather  trade  of 
Brazil  or  of  the  cotton-goods  market  of  Latin  America. 
The  commercial  agent  is  an  expert  in  some  one  line,  and, 
confining  his  investigation  to  the  marketing  of  that  line, 
he  is  able  to  giVe  valuable  help  to  American  manufacturers 
and  exporters  interested.  The  ''Special  Agents"  reports 
form  an  important  series  in  the  publications  of  the  bureau. 

Foreign  Trade  Advisers. — That  branch  of  the  work  of  the 
State  Department  concerned  with  the  promotion  of  for- 
eign trade  is  carried  on  through  a  bureau  known  as  the 
Foreign  Trade  Advisers'  Bureau  or  Office.  Concessions 
that  are  desired  from  foreign  governments  by  business  men 
or  corporations,  complaints  in  regard  to  tariff  discrimina- 
tions or  overcharges,  and  other  matters  concerning  the  in- 
terests of  Americans  in  foreign  fields,  are  considered  here. 
The  effect  of  our  laws,  especially  our  tariff  laws,  on  the  at- 
titude and  policy  of  other  governments  is  studied  by  the 
officers  of  this  bureau,  which  aims  to  assemble  and  organize 
all  material  available  on  this  and  other  subjects  affecting 
our  foreign  trade  relations. 

Diplomatic  Aids  to  Foreign  Trade. — Our  ambassadors 
and  ministers  to  foreign  countries  frequently,  under  instruc- 


GOVERNMENT  AID  TO  FOREIGN  TRADE     255 

tions  from  the  State  Department,  make  representations, 
complaints,  or  protests  to  foreign  governments  in  regard  to 
the  rights  and  privileges  of  Americans  carrying  on  business 
with  foreigners,  and  often  obtain  valuable  concessions  or 
modifications  of  obnoxious  regulations  that  are  of  the  utmost 
benefit  to  our  exporters  or  importers. 

The  negotiation  of  commercial  treaties  with  other  na- 
tions, carried  on  through  diplomatic  representatives,  has 
become  of  the  greatest  importance  to  modern  commerce. 
While  these  may  apply  to  a  wide  variety  of  subjects,  the 
effort  to  obtain  mutual  tariff  concessions  bet\yeen  the  coun- 
tries concerned  is  the  sphere  of  widest  appHcation.  Such 
treaties  are  usually  entered  into  for  a  period  of  years,  there- 
by stabilizing  conditions,  to  the  benefit  of  commerce.  As 
an  example  of  trade  benefits  secured  through  commercial 
treaties  the  preferential  tariff  agreement  now  in  force  be- 
tween the  United  States  and  Brazil  may  be  cited.  Through 
this  a  30  per  cent  reduction  from  the  regular  duties  is 
granted  by  Brazil  on  flour  imported  from  the  United  States, 
and  a  20  per  cent  reduction  on  pianos,  condensed  milk, 
clocks  and  watches,  paints  and  inks,  refrigerators,  rubber 
manufactures,  scales,  typewriters,  varnishes,  windmills, 
corsets,  cement,  dried  fruit,  and  school  and  office  furni- 
ture. These  reductions  were  granted  in  consideration  of 
the  fact  that  the  two  principal  exports  of  Brazil,  rubber  and 
coffee,  found  their  readiest  market  in  the  United  States, 
where  they  are  admitted  duty  free.  As  has  been  pointed 
out,  Germany  has  made  a  wide  use  of  such  commercial 
treaties.  The  next  few  years  will  without  doubt  be  marked 
by  a  great  extension  of  this  principle  between  trading  na- 
tions having  reciprocal  commercial  relations. 


2S6    FOREIGN  TRADE   OF   UNITED   STATES 


BIBLIOGRAPHY 

American  Consular  Service.  Bookman,  vol.  44  :  186-197,  Oc- 
tober, 1916. 

Business  Proposition:  the  American  Consular  Service.  Indepen- 
dent, vol.  75  :  737-740,  September  25,  1913. 

Cutler,  B.  S.  American  and  Foreign  Government  Trade  En- 
couragement Agencies.  National  Foreign  Trade  Convention, 
Official  Report  of  the  Fifth  Foreign  Trade  Convention,    191 8, 

pp.  67-75- 

Donaldson,  C.  S.  Government  Assistance  to  Export  Trade.  Phila- 
delphia, 1909. 

Fairlie,  J.  A.  The  Department  of  State.  (In  his  National  Ad- 
ministration of  the  United  States.)  New  York,  Macmillan, 
1905. 

Hunt,  Gaillard.  The  Diplomatic  and  Consular  Service.  (In  his 
The  Department  of  State  of  the  United  States:  Its  History  and 
Functions)     New  Haven.   Yale  University  Press,  1914. 

Jones,  C.  L.  The  Consular  Service  of  the  United  States  :  Its  His- 
tory and  Activities.  Philadelphia,  University  of  Pennsylvania, 
1906. 

More  Businesslike  Consular  Service.  Outlook,  vol.  109  :  250-1. 
February  3,  191 5. 

National  Foreign  Trade  Council.  Urgent  Needs  of  the  Dip- 
lomatic and  Constdar  Services.  New  York,  National  Foreign 
Trade  Council,  1916. 

Totten,  R.  J.  The  American  Consular  Service.  (In  National  For- 
eign Trade  Council.  Official  Report  of  the  Fifth  National  For- 
eign Trade  Convention,  191 8,  pp.  75-82.) 

U.  S.  Bureau  of  Education.  Conference  on  Training  for  Foreign 
Service.     Bulletin  37.     Washington,  191 7. 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Are 
You  Interested  in  Latin  American  Trade  ?  How  the  Bureau 
.  .  .  Can  Help  You  to  Establish  or  Expand  Your  Trade  with 
Latin  America.     Washington,  1918. 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Export 
Trade  Suggestions.  Washington,  Government  Printing-Office, 
1916.     (Miscellaneous  series  no.  35.) 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Govern- 
ment Assistance  to  American  Exporters.     Washington,  1916. 

U.  S.  Bureau  of  Foreign  a»nd  Domestic  Commerce.  Imports 
and  Exports.  Services  to  Exporters  Rendered  by  the  Bureau.  .  .  . 
1918. 


GOVERNMENT  AID   TO   FOREIGN  TRADE     257 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Promotion 
of  Commerce.  Outline  of  the  Service  Maintained  by  the  Bureau 
of  Foreign  and  Domestic  Commerce  and  Other  Bureaus  and  Offices 
of  the  Governme7it  of  the  United  States.  Washington,  Govern- 
ment Printing-Ofl&ce,  1914.     (Miscellaneous  series  no.  6E.) 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Trade  In- 
formation on  Far  East  Available  in  Bureau  of  Foreign  and 
Domestic  Commerce.     191 8. 

U.  S.  Congress.  Senate.  American  Consular  Service.  63d  Con- 
gress, 2d  session,  Senate  document  no.  541,  serial  no.  6595. 
Washington,  1914. 

U.  S.  Department  of  State.  Digest  of  Circular  Instructions  to 
Consuls,  1897-1915.     Washington,  191 5. 

U.  S.  Department  of  State.  Bureau  of  Appointments.  Informa- 
tion Regarding  Appointments  and  Promotions  in  the  Consular 
Service  of  the  United  States.     Washington,  191 7. 

U.  S.  Federal  Trade  Commission.  Report  on  Co-operation  in 
American  Export  Trade.  Washington,  Government  Printing- 
Office.     1916. 

Van  Dyne,  Frederick.  Our  Foreign  Service :  the  'M  B  C"  oj 
American  Diplomacy.    Rochester,  N.  Y.,  1909. 


CHAPTER  XX 

THE  VALUE  OF  FOREIGN  INVESTMENTS  AND  OF  A 
MERCHANT  MARINE  AS  EXEMPLIFIED  BY  THE 
COMMERCE  OF  THE  UNITED  KINGDOM 

Position  of  the  United  Kingdom  in  International  Trade. — 
For  over  a  century  the  United  Kingdom,  popularly  referred 
to  as  England,  has  stood  head  and  shoulders  above  all  other 
nations  in  the  volume  and  value  of  her  international  trade. 
In  the  last  normal  year  before  the  World  War,  19 13,  her 
total  trade  with  other  nations  exceeded  $6,800,000,000. 
This  was  nearly  one-sixth  of  the  entire  trade  of  the  world 
for  that  year.  It  exceeded  the  trade  of  her  nearest  com- 
petitor, Germany,  by  nearly  $2,000,000,000. 

It  is  only  since  the  rise  of  Germany  and  the  United  States 
to  eminence  in  world  trade  that  the  position  of  England 
has  been  seriously  threatened.  The  beHef  is  now  somewhat 
prevalent  that  the  United  Kingdom  cannot  hope  to  retain 
much  longer  the  position  she  has  held  so  successfully  for  so 
many  decades.  The  facts  upon  which  this  belief  is  based 
are  that  her  trade  is  not  increasing  proportionally  as  fast 
as  that  of  her  great  commercial  rivals,  that  her  imports 
are  increasing  faster  than  her  exports,  that  her  pre-eminence 
in  the  manufacturing  industry  is  gradually  slipping  away, 
and  that  her  dependence  upon  other  countries  for  the  raw 
materials  essential  to  her  manufactures  and  for  the  food- 
stuffs requisite  for  her  population  is  becoming  greater  year 
by  year. 

While  there  is  food  for  thought  in  this  view  of  England's 
condition,  the  fact  remains  that  in  1914  England  claimed 
one-sixth  of  the  world's  commerce,  owned  about  one-half 
of  the  ocean  tonnage  of  the  world,  was  second  only  to  the 

258 


COMMERCE  OF  THE  UNITED   KINGDOM     259 

United  States  in  the  output  of  her  manufacturing  industry, 
underwrote  about  two-thirds  of  the  marine  insurance  taken 
out  on  ships  and  cargoes,  led  all  other  nations  in  the  ship- 
building industry,  had  the  largest  investment  of  capital  in 
foreign  enterprises,  supplied  nearly  one-fourth  of  the  coal 
production  of  the  world,  and  was  the  undisputed  leader  in 
banking  and  finance. 

Causes  of  Commercial  Supremacy. — In  seeking  an  ex- 
planation of  the  supremacy  of  the  United  Kingdom  in 
international  trade,  four  great  fundamental  factors  are 
readily  recognized.  These  are  the  early  development  of 
her  merchant  marine,  which,  coupled  with  her  navy,  won 
her  a  great  colonial  empire;  her  leadership  in  the  indus- 
try of  manufacturing,  won  in  the  industrial  revolution  of 
the  early  nineteenth  century  and  retained  until  nearly  the 
end  of  that  century;  her  adoption  of  the  free-trade  policy 
at  a  time  when  that  policy  unquestionably  fostered  the 
upbuilding  of  her  manufactures  and  of  her  commerce; 
and,  lastly,  her  policy  of  developing  new  countries  and  new 
markets  through  the  investment  of  capital  in  public  and 
private  overseas  enterprises.  Of  these,  the  naval  and 
tariff  policy  are  poHtical,  while  the  building  up  of  a  great 
manufacturing  industry  and  the  securing  of  the  capitalistic 
leadership  of  the  world  have  been  largely  the  result  of  in- 
dividual effort. 

We  find  in  England  no  such  organization  of  industry 
and  commerce  as  exists  in  Germany;  British  trade  is  free, 
not  only  in  regard  to  tariffs,  but  also  in  regard  to  govern- 
ment direction  or  control.  Outside  the  kingdom  the 
government  zealously  guards  the  rights  and  interests  of 
her  citizens,  using  diplomacy  or  force,  as  may  be  necessary, 
to  secure  every  protection  and  every  advantage  for  her 
traders  and  her  capitalists  the  world  over.  Within  the 
kingdom  the  policy  of  laissez-faire  prevails  to  such  an  ex- 
tent that  the  EngHsh  system  has  been  characterized  as 
''individuahsm  gone  mad."     In  late  years,  however,  under 


2  6o    FOREIGN  TRADE  OF  UNITED   STATES 

the  leadership  of  David  Lloyd  George,  there  has  been  a 
movement  to  bring  industry  under  close  government  su- 
pervision, with  the  object  of  improving  the  conditions 
of  labor  and  of  remedying  some  of  the  evils  resulting  from 
the  industrial  system. 

The  Merchant  Marine. — The  first  factor  in  England's 
commercial  success  is  her  merchant  marine.  Her  early 
leadership  in  the  carrying  trade  of  the  world,  which  she 
won  from  the  Dutch  in  the  second  half  of  the  seventeenth 
century,  gave  her  a  tremendous  advantage  in  the  quest 
for  world  markets  that  has  played  such  an  important  part 
in  the  history  of  every  modern  nation.  The  methods  used 
in  fostering  the  growth  of  her  merchant  marine  and  the 
commerce  depending  upon  that  marine  are  thus  summarized 
by  Adams  in  his  European  History: 

It  is  from  the  time  of  Cromwell's  rule  that  we  may  date  the  be- 
ginning of  a  continuous  commercial  and  colonial  policy  on  the  part 
of  the  English  Government.  .  .  .  With  him  began  the  measures 
which  long  characterized  English  policy,  to  defend  and  develop 
commerce  and  the  colonies,  not  as  colonies  mainly  but  as  feeders 
of  commerce,  by  acts  of  Parliament  and  whenever  necessary  by 
war.  In  1651  was  passed  the  first  Navigation  Act,  which  forbade 
the  importation  of  goods  into  any  English  possession  except  in 
English  vessels  or  in  the  vessels  of  the  country  producing  the  goods. 
This  was  aimed  directly  at  the  great  carrying  trade  of  the  Dutch, 
and  was  intended  to  transfer  this  to  English  ships.  Laws  of  this 
kind,  successively  passed,  remained  in  force  until  into  the  nineteenth 
century. 

Such  a  policy  undoubtedly  had  its  effect,  but  a  far  more 
potent  influence  was  the  love  of  the  English  for  the  sea. 
From  earhest  times  they  had  been  a  seafaring  people, 
ready  enough  to  follow  any  enterprise  holding  out  the 
promise  of  reward  or  adventure.  Hardly  had  the  discov- 
ery of  the  New  World  opened  up  new  vistas  for  commer- 
cial conquest  before  the  daring  British  sea-captains  went 
boldly  adventuring  into  uncharted  seas  in  quest  of  trade, 


COMMERCE  OF  THE  UNITED   KINGDOM     261 

and  so  established  regular  trade  routes  and  trading-sta- 
tions before  other  nations  had  fully  awakened  to  the  possi- 
bilities of  establishing  a  permanent  and  profitable  overseas 
commerce.  No  seaport  was  too  far  distant  to  be  reached 
by  British  merchant  vessels,  no  passage  was  too  hazardous 
to  be  undertaken  by  her  mariners,  who  were  equalled  in 
modern  times  only  by  those  of  the  American  colonies,  them- 
selves British  subjects. 

Every  advantage  that  can  come  to  a  nation  from  the 
possession  of  a  great  merchant  marine  has  been  England's 
for  over  three  centuries.     These  in  brief  are  as  follows: 

The  maintaining  of  direct  trade  routes  and  direct  trade 
relations  '\;\'ith  all  parts  of  the  world,  with  the  consequent 
stimulation  of  foreign  trade  and  foreign  financing;  the 
earning  of  great  sums  of  money  for  performing  the  carrying 
ser\ice  for  other  nations,  and  the  strengthening  of  the 
naval  power  of  the  nation  by  the  control  of  a  powerful  fleet 
that  may  be  converted  into  a  naval  auxiliary  as  required. 

In  the  case  of  England,  her  merchant  marine  has  been  a 
necessary  adjunct  in  securing  and  maintaining  her  great 
colonial  empire.  While  the  attempts  made  by  the  mother 
country  to  control  the  commerce  of  her  colonies  proved 
ineft'ective,  and  threatened  to  break  up  the  empire,  the 
possession  of  colonies  did,  nevertheless,  both  directly  and 
indirectly  help  to  build  up  a  great  overseas  commerce. 
The  promotion  of  trade  betw^een  people  speaking  the  same 
language,  having  the  same  traditions,  tastes,  and  customs 
is  easier  than  between  people  of  great  differences  in  lan- 
guage, tastes,  characteristics,  and  customs.  Other  things 
being  equal,  English  emigrants  prefer  English  wares  to 
those  of  other  countries.  Then,  too,  the  colonies  found  it 
to  their  advantage  to  trade  with  England,  because  that 
country  offered  the  best  market  for  the  raw  materials  and 
foodstuffs  they  produced  in  superabundance  and  supplied 
those  finished  manufactures  that  every  new  country  must 
inaport. 


262     FOREIGN  TRADE   OF  UNITED   STATES 

The  British  merchant  marine  was  at  all  times  ready  to 
serve  the  colonies  and  all  other  nations  in  this  exchange  of 
wares.  Regular  and  rapid  service  has  long  been  maintained 
between  English  ports  and  those  of  every  other  nation. 
England  first  adopted  steam  navigation  in  overseas  com- 
merce and  established  a  network  of  steamship  lines  that 
bound  the  world  to  her  with  invisible  threads.  She  thus 
was  able  to  carry  not  only  her  own  exports  and  imports 
but  also  a  large  part  of  those  of  other  nations.  The  direct 
exchange  of  the  surplus  products  of  England  for  those  of 
other  nations  has  thus  been  supplemented  by  a  trade  of 
immense  volume  in  the  products  of  other  countries.  Eng- 
land thus  became  the  great  distributing  centre  for  the 
wares  of  the  nations,  which  found  it  convenient  to  send 
their  surplus  products  in  British  ships  to  London  and  to 
take  in  exchange  those  other  products,  be  they  British  or 
Continental,  African  or  Asiatic,  American  or  Oceanic, 
which  were  offered  in  this  great  world  mart  in  quantity 
and  variety  almost  unlimited.  It  is  this  that  made  Lon- 
don for  over  a  century  the  commercial  and  financial  centre 
of  the  world. 

Manufacturing. — English  commerce  has  developed  side 
by  side  with  the  industry  of  manufacturing.  For  over  a 
century  England  led  the  world  in  that  industry,  finally 
being  overtaken  and  passed  by  the  United  States  in  the 
last  quarter  of  the  nineteenth  century.  The  tremendous 
manufacturing  industry  of  the  United  Kingdom  owes  its 
success  largely  to  the  fact  that  this  nation  was  the  first 
to  develop  the  factory  system,  which  resulted  from  the  use 
of  machinery  driven  by  the  power  of  steam.  An  abundance 
of  coal  and  iron  conveniently  placed  near  the  sea  greatly 
aided  England  in  taking  the  leadership  in  the  industrial 
revolution  resulting  from  the  introduction  of  steam-power 
in  the  early  nineteenth  century.  The  position  as  the  great- 
est manufacturing  nation  in  the  world  won  at  that  time 
was  retained  unchallenged  until  the  greater  efficiency  of 


COMMERCE  OF  THE  UNITED   KINGDOM     263 

electric  power,  combined  with  new  and  improved  methods 
of  production,  worked  another  industrial  revolution.  That 
England  has  not  lost  her  skill  in  manufacturing  is  shown 
by  the  fact  that  in  19 14  the  output  of  her  manufacturing 
plants  was  equalled  by  that  of  only  two  nations,  the  United 
States  and  Germany,  and  surpassed  only  by  that  of  the 
United  States.  English  exports  of  manufactures  exceeded 
those  of  any  other  nation.  This  has  greater  significance 
when  it  is  remembered  that  the  population  of  the  United 
Kingdom  in  1914  was  only  45,000,000,  w^hile  that  of  Ger- 
many was  66,000,000  and  that  of  the  United  States  98,- 
000,000.  It  is  estimated  that  the  per  capita  production  of 
manufactures  in  the  United  Kingdom  was  S200  in  that  year, 
that  of  Germany  $138,  and  of  the  Urn* ted  States  $210. 

The  manufactures  in  which  England  has  excelled  are 
textiles,  especially  those  of  cotton;  machinery,  including 
that  used  in  the  textile  industry;  locomotives,  iron  and 
steel  rails;  cutlery;  pottery;  and  leather  manufactures. 
The  building  of  ships  has  been  an  industry  of  prime  im- 
portance in  England  from  earKest  times;  since  the  in- 
troduction of  ships  built  of  iron  and  sted  England  has  been 
able  to  turn  them  out  more  cheaply  than  they  can  be  built 
in  the  United  States,  though  this  is  probably  no  longer 
the  case. 

The  value  of  English  manufactures  exported  in  191 2  was 
about  $2,000,000,000;  that  of  all  other  nations  was  about 
$6,000,000,000.  That  England  had  not  lost  all  claim  to 
the  title  of  ''the  workshop  of  the  world"  is  evidenced  by 
these  figures.  It  is  generally  agreed,  however,  that  Eng- 
lish manufacturing  methods  have  not  kept  pace  with  the 
latest  improvements  and  that  there  has  been  greater  efii- 
ciency,  in  large-scale  production,  in  both  Germany  and  the 
United  States.  Since  this  is  recognized  in  England  itself, 
and  measures  are  being  taken  to  introduce  the  improve- 
ments necessary,  a  great  decline  in  English  industrial  pres- 
tige is  not  probable. 


264    FOREIGN   TRADE   OF   UNITED   STATES 

England^s  Free-Trade  Policy. — In  analyzing  the  causes 
of  England's  commercial  supremacy,  due  consideration 
must  be  given  to  the  effect  of  her  free-trade  policy.  The 
repeal  of  the  corn  laws,  which  was  the  name  applied  to  the 
tariff  laws  of  the  time,  was  accomplished  in  1849.  ^ 
writer  on  the  subject  says:  *'It  was  a  momentous  act  in 
English  history.  It  marks  the  formal  and  final  recogni- 
tion that  England  had  grown  from  an  agricultural  to  an 
industrial  and  commercial  state.  It  threw  England,  as 
an  English  economist  said,  frorn  corn  to  coal  as  the  staple 
product  of  the  country.  Manufactures  and  trade  thence- 
forth developed  freely.  Even  the  agricultural  interest 
gained  in  ways  which  it  had  not  foreseen:  the  consuming 
population  increased  rapidly  both  in  numbers  and  in  pur- 
chasing power,  and  demanded  increasing  quantities  of  meat, 
dairy  produce,  vegetables,  and  fruit." 

Under  free  trade  the  manufacturer  has  been  able  to 
secure  the  raw  materials  needed,  such  as  cotton,  wool, 
iron,  hides,  and  lumber,  at  the  lowest  possible  prices.  At 
the  same  time  foodstuffs  to  supply  the  needs  of  the  com- 
munity have  been  imported  duty  free.  Since  England's 
home  supply  of  foodstuffs  is  entirely  inadequate,  the  im- 
position of  duties  would  impose  a  burden  on  the  consuming 
population.  The  effect  of  free  trade  on  the  English  farmer 
is  a  mooted  question. 

The  adoption  of  the  free-trade  policy  had  a  wonderful 
influence  upon  the  re-export  trade  of  England.  Professor 
Webster  thus  describes  the  effect  of  free  trade  upon  Eng- 
land's commerce: 

By  this  step  also  she  became  the  great  dock,  as  it  were,  where 
were  unloaded,  free  of  charge,  the  products  of  all  countries,  thus 
leaving  her  a  share  of  the  profits  of  the  world's  trade.  Not  only  did 
foreign  merchandise  come  there  for  redistribution,  but  foreign  mer- 
chants, after  unloading  there,  replenished  their  cargoes  in  her 
markets.  She  profited  also  from  the  sojourn  of  foreign  ships  in 
her  ports  by  supplying  them  with  coal  and   provisions  and   by 


COMMERCE  OF  THE  UNITED   KINGDOM     265 

charges  for  their  repairs.     Her  banks  profited  enormously  by  con- 
ducting the  financial  operations  of  these  foreign  merchants. 

Wliile  there  is  general  agreement  as  to  tlie  beneficial 
effects  of  free  trade  on  English  commerce  and  industry  in 
the  past,  there  has  been  for  a  number  of  years  a  strong 
feeling  in  England  that  changed  conditions  make  a  reversal 
or  modification  of  that  policy  advisable.     While  the  United 
Kingdom,  pre-eminent  in  manufacturing,  could  disregard 
the  competition  of  the  newer  manufacturing  nations,  she 
had  Kttle  need  of  a  tariff  wall  to  shut  out  the  manufactures 
of  other  nations  from   competing  in  her  home  market. 
But  now  that  other  nations  have  become  active  and  ag- 
gressive competitors  of  England  in  the  sale  of  manufac- 
tured products  and  have  even  invaded  England  itself  with 
their  wares,  which  they  not  infrequently  sell  for  less  than 
the  cost  of  production,  in  order  to  secure  the  market,  it  is 
argued  that  England  must  resort  to  a  protective  policy. 
The  practice  just  referred  to  of  one  country  ''dumping" 
its  surplus  products  into  another  country  at  prices  below 
cost  is  made  possible  by  the  protective  system,  which  main- 
tains prices  at  home  and  makes  it  possible  for  the  manu- 
facturer to  sell  his  surplus  product  abroad  at  an  absurdly 
low  fiigure,   while   his   domestic   customers  make   up   the 
deficit.     He  argues  that  by  so  doing  he  is  enabled  to  carry 
on  production  on  a  large  scale  and  at  the  same  tune  to 
get  a  foothold  in  the  foreign  market. 

Those  who  favor  the  abandonment  of  the  free-trade 
policy  in  England  have  another  argument  besides  the  one 
that  a  protective  tariff  is  necessary  to  prevent  the  ruin  of 
the  home  market  by  the  practice  of  dumping.  They  main- 
tain that  since  England's  great  commercial  rivals,  the 
United  States,  Germany,  and  France,  all  have  protective 
tariffs,  which  mxake  it  difficult  or  impossible  for  English 
manufacturers  to  compete  in  the  markets  of  those  nations, 
the  only  way  in  which  she  can  retahate  against  discrimina- 


266    FOREIGN  TRADE   OF   UNITED   STATES 

tion  is  to  herself  adopt  that  system.  Such  a  trading  tariff 
as  Germany  has  had  is  the  one  most  favored.  Under  that 
tariff,  reciprocal  trade  concessions  may  be  made  between 
nations  to  the  advantage  of  both.  An  extension  of  this 
idea  is  the  advocacy  of  an  imperial  customs'  union  similar 
to  the  German  Zollverein,  with  free  trade  existing  only 
within  the  empire,  a  trading  tariff  being  erected  against 
other  countries.  Such  a  system  might  aid  in  strengthen- 
ing English  industry,  but  the  effect  upon  her  commercial 
supremacy  would  be  unfavorable.  Economists  agree  that 
a  nation  that  counts  its  international  trade  as  of  paramount 
importance  jeopardizes  that  trade  when  it  deviates  from 
the  principle  of  free  trade. 

Foreign  Investments. — A  factor  of  incalculable  influence 
in  England's  prestige  in  international  trade  has  been  the 
readiness  of  her  people,  from  the  capitaHst  with  millions 
at  his  command  to  the  humble  citizen  with  the  merest  mite 
for  investment,  to  loan  their  money  in  foreign  lands.  It 
is  the  newer  countries  possessing  great  undeveloped  re- 
sources that  have  always  been  most  in  need  of  foreign 
capital  to  enable  the  pioneers  of  industry  to  wrest  from 
nature  the  v/ealth  she  has  stored  up  in  forest  and  jungle, 
mine  and  plain.  This  capital  England  has  supplied  with 
lavish  hand,  and  it  has  seldom  failed  to  yield  good  returns 
as  an  investment.  But  the  direct  stimulation  to  English 
commerce  has  been  of  far  greater  value  than  the  dividend 
or  interest  return. 

The  first  need  of  such  undeveloped  regions  as  now  exist 
in  Argentina  and  other  Latin  American  countries;  in  Can- 
ada, Australia,  and  South  Africa;  in  Russia  and  in  China,  is 
railroads,  which  afford  the  necessary  transportation  facili- 
ties to  carry  in  the  machinery  and  supplies  essential  to  the 
development  of  the  country  and  to  carry  out  the  products 
resulting  from  that  development,  whether  they  be  the  prod- 
ucts of  the  mine,  the  forest,  or  the  farm.  Those  invest- 
ments which  have  greatly  stimulated  the  sale  of  English 


COMMERCE   OF   THE  UNITED   KINGDOM     267 

products  have  been  concerned  with  the  promotion  of  great 
public  and  private  development  enterprises,  such  as  rail- 
roads,  power-plants,    street-car   lines,    irrigation   systems, 
harbor  improvements,  and  mining  and  agricultural  activi- 
ties.    In    each    instance    the    work    of    development    has 
created  an  enormous  demand  for  the  construction  material 
essential  to  the  carrying  out  of  the  project.     In  placing 
the  orders  it  has  been  quite  natural  to  give  preference 
to  English  firms.     This  has  in  many  instances  been  pro- 
vided for  in  the  negotiations  preceding  the  loan  or  invest- 
ment.   A  prominent  American  banker  analyzes  the  situation 
thus:   ''English  investments  in  South  American  railroads 
means  that   English-made  cars,   pulled   by   EngHsh-built 
locomotives,  \\dll  run  over  English- rolled   rails;    that   all 
purchases  of  supplies  will  be  made  in  London;  that  the 
roads  will  be  managed  by  EngHshmen,  and  that  the  in- 
fluence of  the  roads  in  the  country  through  which  they  run 
will  be  exerted  in  favor  of  the  advancement  of  EngHsh 
interests.     A  permanent  market  is  thus  made  for  English 
goods  which  is  quite  safe  from  attack." 

It  is  clear  that  such  investments  do  not  take  English 
money  out  of  the  country.  EngHsh  capitaHsts  loan  for- 
eign industrial  leaders  the  money  with  which  they  purchase 
EngHsh  goods  from  EngHsh  manufacturers.  The  money 
remains  in  the  country  and  the  goods  go  out.  It  is  not  the 
manufacturer  but  the  capitaHst  who  extends  the  credit 
to  the  promoter  of  new  enterprises  in  foreign  lands.  The 
advantage  to  EngHsh  industry  of  such  loans  is  therefore 
apparent.  It  must  be  borne  in  mind,  however,  that  all 
loans  are  not  made  under  such  favorable  conditions.  In- 
stances are  not  rare  in  which  capital  secured  in  England 
to  promote  industry  in  another  countr>^  ultimately  found 
its  way  to  a  third  nation  in  pa\'ment  for  suppHes  purchased 
in  the  latter  country. 

The  total  overseas  investments  of  EngHshmen  in  1913, 
according  to  estimates  made  by  Sir  George  Paish,  the  emi- 


268    FOREIGN  TRADE   OF   UNITED   STATES 

nent  statistician,  aggregated  £3,715,000,000,  or  approxi- 
mately $18,000,000,000.  The  investments  in  the  British 
possessions  were  estimated  at  £1,780,000,000,  while  those 
in  foreign  countries  approximated  £ i  ,93 5 ,000,000.  English 
investments  in  the  United  States  in  that  year  were  esti- 
mated at  £755,000,000  and  those  in  Latin  America  at 
£724,000,000. 

It  is  estimated  that  the  investments  made  by  English- 
men in  overseas  enterprises  in  the  decade  between  1900  and 
1910  totalled  £901,000,000,  or  about  $4,500,000,000.  In 
the  single  year  of  1913  over  £196,000,000  went  overseas 
from  England  for  investment  purposes.  It  is  interesting 
to  note  the  distribution  of  investments  in  securities  in  the 
United  Kingdom  in  that  year. 

The  following  tabulation  shows  the  amount  of  capital, 
expressed  in  million  pounds,  invested  by  Englishmen  in 
securities  in  19 13: 


United  Kingdom 

49.2 
98.7 
98.0 

British  possessions     

Foreign  countries  

Total 

245 -9 

This  table  reveals  the  fact  that  only  20  per  cent  of  the 
total  was  retained  in  the  United  Kingdom;  80  per  cent 
went  overseas,  where  5  and  6  per  cent  could  be  realized 
instead  of  the  3  and  4  per  cent  prevaiHng  in  England. 

The  income  the  English  people  derived  from  overseas 
investments  each  year,  before  the  war  brought  about  the 
liquidation  of  a  large  part  of  these  investments,  approxi- 
mated $900,000,000,  which  paid  for  over  one-fourth  of  the 
imports  of  the  United  Kingdom.  This  is  one  of  the  reasons 
why  the  annual  imports  of  the  United  Kingdom  have 
exceeded  the  exports.  British  overseas  investments  yielded 
annually  enough  to  more  than  pay  for  surplus  imports; 
English  ships  engaged  in  the  carrying  trade  piled  up  im- 


COMMERCE  OF  THE  UNITED   KINGDOM     269 

mense  earnings,  which  greatly  added  to  England's  position 
as  a  creditor  nation.  The  chapter  devoted  to  the  subject  of 
the  balance  of  trade  goes  further  into  this  subject. 

Professor  WilHam  Clarence  Webster  thus  graphically 
describes  the  effect  of  British  overseas  investments  as  they 
existed  prior  to  the  World  War: 

While  England  has  been  losing  her  position  as  the  world's  work- 
shop, she  has  been  building  up  her  capitalistic  supremacy.  Her 
capital  has  flowed  into  her  colonies  and  nearly  every  country  in 
the  world.  Consequently,  she  has  become  the  world's  creditor,  and 
wields  the  power  that  accompanies  capitalistic  supremacy.  Her 
capitalists  own  vast  tracts  of  land  and  work  farms  in  nearly  every 
country  of  the  world;  they  also  control  railroads,  manufacturing 
plants,  and  mines  in  many  of  the  most  strategic  places  on  every 
continent.  In  this  way  England  keeps  her  cows  in  Australia, 
Canada,  and  Argentina;  cultivates  her  wheat  in  Manitoba,  the 
United  States,  and  India;  grows  her  cotton  in  the  United  States, 
India,  and  Egypt;  spins  it  not  only  at  home,  but  even  in  India, 
China,  Egypt,  and  Mexico;  makes  her  machinery  in  Germany  and 
the  United  States.  Thus,  not  only  her  many  colonies,  but  the  whole 
world,  has  become  a  part  of  her  domain  through  the  power  of  her 
capital. 

This  is  a  striking  description  of  England's  capitahstic 
supremacy,  but  it  suggests  the  other  side — the  unfavorable 
side — of  foreign  investments.  The  EngHsh  dairyman  nat- 
urally objects  to  England  ''keeping  her  cows  in  Australia, 
Canada,  and  Argentina";  he  would  prefer  to  have  her  make 
it  possible  for  him  to  keep  a  larger  number  at  home.  The 
Enghsh  farmer,  while  recognizing  that  part  of  England's 
wheat  must  be  cultivated  in  Manitoba,  the  United  States, 
and  India,  knows  that  much  more  of  it  could  be  cultivated 
in  England  if  the  large  estates  were  broken  up  and  more 
favorable  terms  and  conditions  given  the  rural  worker;  the 
British  textile  worker  who  has  found  employment  increas- 
ingly scarce  in  England  and  wages  shamefully  low  feels 
that  he  will  soon  have  to  follow  British  capital  to  the  new 
countries  if  much  more  of  England's  cotton  is  to  be  spun 


2  70    FOREIGN  TRADE   OF  UNITED   STATES 

in  other  countries;  and  the  worker  in  iron  and  steel  objects 
to  being  thrown  out  of  work  because  British  capitalists 
prefer  to  invest  their  money  in  industrial  plants  in  other 
countries  rather  than  in  England. 

It  is  generally  agreed  that  England's  high  position  in 
manufacturing  can  be  retained  only  by  an  extensive  and 
thorough  reorganization  of  that  industry,  beginning  with 
tlie  installation  of  new  machinery  and  equipment  that  will 
enable  her  plants  to  compete  with  those  of  Germany  and 
the  United  States.  Such  a  programme  involves  the  invest- 
ment of  vast  amounts  of  capital.  The  Enghsh  capitaHst 
must  cease  to  send  80  per  cent  of  his  yearly  investment  out 
of  the  kingdom,  even  if  by  so  doing  his  income  is  diminished. 
England  without  a  great  manufacturing  industry  would  lose 
a  large  part  of  its  population,  of  its  productive  power,  of 
its  foreign  trade,  of  its  capitalistic  and  commerical  su- 
premacy. 

This  does  not  signify  that  foreign  investments  are  either 
unwise  or  unpatriotic;  they  are,  on  the  contrary,  essential 
to  an  ordered  world  development;  it  simply  means  that 
the  policy  of  preferring  foreign  to  home  investments,  when 
the  latter  are  sadly  needed,  is  bound  to  have  more  or  less 
disastrous  effects.  The  feeling  of  a  portion  of  the  British 
public  is  well  expressed  in  this  passage,  taken  from  an  article 
pubHshed  in  the  Fortnightly  Review  for  July,  19 14— the 
month  before  the  war  put  a  sudden  quietus  on  the  exodus 
of  English  capital:  ''Overseas  in  South  America  and  else- 
where magnificent  cities  are  being  built  up  with  British 
capital,  even  while  many  of  our  towns  remain  a  disgrace  to 
civilization.  ...  It  is  a  pregnant  thought  that  one  year's 
foreign  investing,  applied  to  the  power  resources  of  this 
country,  could  transfer  the  whole  of  our  industrial  and  social 
life  and  give  such  a  stimulus  to  British  industry  as  it  has 
never  before  received." 

Progress  in  Foreign  Trade.— The  progress  made  by  the 
United  Kingdom  in  foreign  trade  since  1880  is  shown  in  the 


COMMERCE  OF  THE  UNITED   KINGDOM     271 

follo^ving  table,  which  gives  the  imports  and  exports  in 
millions  of  pounds  sterling,  with  approximate  equivalents 
in  millions  of  dollars.  The  figures  are  for  the  general 
trade,  which  includes  the  transit  or  re-export  trade. 


Year 

Imports 

Exports 

Total 

1880. . . 
1900. . . 
I9IO. . . 
1913.  • 

£411.2 
523-0 
678.2 
768.7 

$2,001  .2 

2,545-5 

3,300.7 
3,751-0 

£286.4 

354-3 
534-1 
634.8 

$1,393-8 

1,724-5 
2,599-2 

3,089-3 

£    697.6 

877-3 
1,212.3 

1,403-5 

$3,395  0 
4,270.0 

5,899-9 
6,840.3 

Between  1880  and  1913  the  total  trade  more  than  doubled, 
by  far  the  greatest  gain  occurring  after  1900.  The  im- 
ports were  uniformly  greater  than  the  exports,  though  the 
difference  between  them  tended  to  become  less.  This  dif- 
ference, as  has  been  explained,  was  more  than  offset  by  the 
earnings  of  British  ships  engaged  in  the  carrying  trade 
and  by  the  interest  on  foreign  investments.  The  imports 
show  an  increase  during  the  entire  period  of  87  per  cent, 
but  it  is  to  be  noted  that  the  increase  between  1900  and  191 3 
was  only  47  per  cent.  The  exports  during  this  period  in- 
creased faster  than  the  imports;  the  percentage  increase 
in  exports  is  nearly  122  per  cent.  The  exports  nearly 
doubled  between  1900  and  1913;  as  a  matter  of  fact  they 
quite  doubled  between  1899  and  1913. 

It  is  thus  clear  that  the  progress  of  England  in  her  gen- 
eral foreign  trade  has  been  tremendous.  Let  us  now  con- 
sider her  special  trade,  which  includes  only  imports  for 
English  consumption  and  exports  of  English  merchandise. 
In  the  following  table  the  imports  and  exports  are  given 
in  milHons  of  dollars. 

In  noting  the  growth  of  this  trade,  we  will  not  consider, 
for  the  present,  the  year  19 14,  as  the  commerce  for  the 
latter  half  of  that  year  was  thrown  out  of  normal  by  the 
outbreak  of  the  World  War;  neither  will  we  consider 
the  commerce  of  the  war  years  following.     Throughout 


2  72     FOREIGN  TRADE   OF  UNITED   STATES 


Year 


1880 
1890 
1900 
I9IO 

I913 
I9I4 

I915 
I916 


Imports 


^1,692.9 

1,732.3 
2,238.0 

2,795-7 
3,207.8 
3,386.1 
4,154.8 
4,619.0 


Exports 


^1,085.5 
1,282.4 
1,417.0 
2,094.4 
2,556.1 
2,096.  I 
1,871.9 
2,940.0 


Total 


$2,778.4 

3,014.7 
3,655-0 
4,890.1 

5,763 -9 
5,482.1 

6,026 . 7 

7,559  o 


the  period  the  changes  are  striking;  between  1880  and  19 13 
imports  nearly  doubled  in  value,  while  exports  increased 
even  greater  proportionally,  those  of  19 13  having  a  value 
nearly  two  and  one-half  times  as  great  as  those  of  1880. 
The  development  on  the  export  side  was  greater  than  on 
the  import  side.  The  growth  for  the  period,  then,  shows 
that  England's  sales  were  increasing  faster  than  her  pur- 
chases, a  condition  considered  an  indication  of  industrial 
progress.  The  period  between  1890  and  1900  was  marked 
by  a  relative  decline  of  exports;  as  this  was  the  period  in 
which  the  United  Kingdom  was  using  her  resources  in  carry- 
ing on  the  Boer  War,  the  decline  is  easily  accounted  for. 
The  condition  just  noted  was  reversed  in  the  next  decade, 
when  the  expansion  in  imports  approximated  25  per  cent, 
while  that  in  exports  reached  nearly  50  per  cent.  Again, 
we  see  the  exports  increasing  at  a  more  rapid  rate  than  the 
imports  in  the  years  between  1910  and  19 13.  The  fact 
that  England's  capitalistic  and  shipping  supremacy  has 
enabled  her  to  buy  more  than  she  sells  has  created  the 
erroneous  impression  that  her  imports  are  increasing  faster 
than  her  exports,  while  just  the  opposite  is  the  case. 
Finally,  it  is  unportant  to  note  that  the  value  of  British  ex- 
ports in  1 9 13  exceeded  the  value  of  commodities  exported 
in  1900  by  over  $1,139,000,000,  and  that  the  increase  in  the 
value  of  her  special  trade  in  that  period  was  $2,108,000,000, 
a  sum  nearly  equalling  the  value  of  the  exports  of  Germany 
for  the  year  191 2.     While  her  relative  progress  has  not  been 


COMMERCE  OF  THE  UNITED   KINGDOM     273 

so  rapid  since  1880  as  that  of  the  United  States  and  Ger- 
many, her  progress  has  been  steady  and  normal.  The 
United  Kingdom  had  a  well-developed  and  strongly  in- 
trenched foreign  trade  of  enormous  proportions  before 
either  of  her  pre-war  great  commercial  rivals  had  secured 
a  foothold  in  the  world's  trade,  and  she  has  not  only  held 
that  immense  trade,  but  has  steadily  increased  it  as  the 
volume  of  the  world's  commerce  increased,  despite  the 
keenest  commercial  rivalry  on  the  part  of  the  newer  and 
more  aggressive  countries. 

Imports. — Over  one- third  of  the  articles  imported  by  the 
United  Kingdom  is  foodstuffs;  nearly  one- third  is  raw  ma- 
terials for  her  factories  and  workshops;  the  balance  in- 
cludes manufactured  articles,  notably  silks,  leather  manu- 
factures, woollens,  hardware,  utensils,  machinery,  and  even 
cutlery,  for  which  Sheffield  has  long  been  noted  as  lead- 
ing the  world,  though  that  city  no  longer  monopolizes  the 
home  market.  The  leading  foodstuffs  imported  are  grain, 
dairy  products,  meat,  tropical  fruits  and  nuts,  sugar,  tea, 
coffee,  canned  goods,  and  cocoa.  The  raw  materials  im- 
ported include  raw  cotton,  iron  ore,  wool,  hides  and  skins, 
and  lumber. 

Exports. — Five  items  comprise  nearly  three-quarters 
of  the  exports.  These  are,  in  the  order  of  their  importance, 
manufactures  of  cotton,  iron  and  steel  manufactures,  wool- 
lens, coal,  and  chemicals.  The  one  raw  material  exported 
in  great  quantities  is  coal,  which  serves  admirably  as  a 
return  cargo  for  the  many  ships  bringing  raw  materials  to 
England.  As  English  imports  are  much  greater  in  bulk 
and  volume  than  the  exports,  coal  is  an  important  factor 
in  balancing  her  carrying  trade.  In  the  manufactured 
articles  exported  there  is  a  wonderful  variety:  all  kinds 
of  cutlery,  hardware,  utensils,  machinery,  crockery,  textiles, 
embroideries,  laces,  thread,  needles,  pins,  thimbles,  and  a 
great  multiplicity  of  other  articles  for  which  there  is  use 
or  desire  in  any  part  of  the  globe. 


274    FOREIGN  TRADE   OF   UNITED   STATES 

Direction  of  Trade. — As  the  United  Kingdom  blazed  the 
trail  to  the  most  remote  regions  of  the  earth  in  the  period 
of  trade  expansion  following  that  of  exploration  and  dis- 
covery, so  she  has  retained  those  trade  connections  es- 
tablished by  her  merchant  pioneers.  There  are  mercan- 
tile houses  in  England  that  have  been  for  generation  after 
generation  controlled  and  managed  by  the  same  family 
and  have  carried  on  a  business  of  great  volume  with  other 
old-established  firms  in  all  parts  of  the  world.  Such  trade 
rests  on  the  solid  foundation  of  business  integrity,  mutual 
confidence  and  understanding,  and  a  basic  knowledge  of 
the  requirements  and  conditions  of  foreign  markets  difficult 
for  a  firm  fresh  in  the  field  to  acquire.  It  is  this  impregnable 
position  of  the  British  export  merchant  that  has  proved  the 
despair  of  rival  merchants  of  other  nations,  who  are  not  in- 
frequently astonished  to  find  that  even  the  most  convinc- 
ing of  all  sales  arguments — superior  quality  at  lower  price 
— has  failed  to  budge  a  customer  from  his  allegiance  to  the 
old  firm.  Undoubtedly,  the  credit  arrangements  that  have 
become  established  between  merchant  and  customer  are  a 
factor  in  the  maintenance  of  business  relations.  Open 
accounts  are  not  infrequent,  and  the  extension  of  credit 
over  a  bad  season  or  in  case  of  temporary  depression  is 
taken  ahnost  as  a  matter  of  course.  So  it  is  that  British 
trade  extends  to  all  nations,  even  to  those  of  remotest  re- 
gions where  the  volume  of  trade  is  necessarily  limited. 

About  one-third  of  the  trade  of  the  United  Kingdom  is 
with  Europe,  one-fourth  with  the  colonies,  and  one-fifth 
with  the  United  States.  The  imports  and  exports  of  the 
colonies  about  balance;  from  Europe  and  America  England 
buys  in  excess  of  her  sales.  She  was  Germany's  best  cus- 
tomer before  the  war,  just  as  Germany  afforded  the  best 
market  for  England's  wares.  The  value  of  goods  imported 
into  Germany  from  the  United  Kingdom  in  19 12  and  also 
in  19 1 3  was  about  $200,000,000;  conversely,  the  value  of 
German  goods  sold  in  the  United  Kingdom. 

Germany's  sales  to  the  British  Isles  in  1913  practically 


COMMERCE  OF  THE  UNITED   KINGDOM     275 

equalled  her  total  sales  to  all  the  countries  of  both  North 
and  South  America  in  that  year.    The  United  States  was 
second  only  to  Germany  in  the  imports  from  the  United 
Kingdom;   France  was  the  next  best  customer  for  British 
wares.     In  19 13  merchandise  valued  at  over  $634,300,000 
was  imported  from  the  United  States;  in  191 5  the  value  of 
such  imports  was  $914,100,000,  and  this  was  more  than 
doubled  in  19 16.     Calendar  years  are  here  considered,  and 
not  our  fiscal  year  ending  June  30.    The  amazing  sales 
made  by  the  United  States  to  England  in  191 5  and  later 
are  of  interest,  but  cannot  be  used  as  a  basis  of  comparison 
because  they  were  so  greatly  augmented  by  the  war.     Eng- 
land normally  takes  about  20  per  cent  of  her  imports  from 
the  United  States,  which  constitutes  a  trade  in  itself  of  no 
mean  proportions.    Less  than  10  per  cent  of  her  exports 
find  a  market  in  the  United  States.     In  1913  the  value  of 
such  exports  was  $289,000,000.    There  was  thus  a  balance 
in  favor  of  the  United  States  of  $344,700,000.    Normally, 
one-fourth  of  the  exports  of  the  United  States  are  sent  to  the 
United  Kingdom.     The  best  customers  of  the  United  King- 
dom have  been,  in  the  order  named,  Germany,  the  United 
States,  France,  British  India,  Australia,  Canada,  Argen- 
tina, the  Netherlands,  Russia,  Belgium,  and  New  Zealand. 
The  countries  from  which  she  buys  in  greatest  quantity 
have  been  the  United  States,  Germany,  France,  British 
India,  Argentina,  Russia,  Canada,  AustraHa,  Belgium,  the 
Netherlands,  Denmark,  and  New  Zealand.     She  buys  wheat 
and  raw  cotton  from  the  United  States,  beet-sugar  from 
Germany,  tea  and  wheat  and  jute  from  British  India, 
wheat  and  lumber  from  Canada,  gold  from  British  South 
Africa  and  from  India,  wine  and  silk  from  France.     Of 
course  these  are  only  the  principal  foodstuffs  and  raw  ma- 
terials that  have  found  a  market  in  the  United  Kingdom 
from  the  countries  mentioned. 

Trade  from  1915  to  1920.— While  the  outbreak  of  the 
war  occasioned  a  shock  to  industry  and  commerce  through- 
out the  world,  and  caused  England  and  the  other  nations 


276    FOREIGN  TRADE   OF   UNITED   STATES 

engaged  to  divert  their  energy  and  productive  power  to  the 
one  all-important  task  of  perfecting  and  maintaining  the 
machinery  of  destruction,  even  in  191 5  and  19 16  the  com- 
merce of  the  United  Kingdom  was  not  far  from  normal  in 
volume,  though  its  character  was  changed,  especially  in 
regard  to  the  articles  imported.  The  importation  of  food- 
stuffs and  war  supplies  was  so  enormous  as  to  dwarf  that 
of  raw  materials  for  the  manufacture  of  the  commodities 
of  peace  and  also  of  staple  manufactures.  Home  manu- 
factures did  not  languish  greatly  during  those  years.  Eng- 
land had  the  coal  to  furnish  the  power,  the  ships  to  bring 
the  raw  material  from  overseas,  and  the  navy  to  keep  open 
the  channels  of  trade.  Even  the  supply  of  labor  was  not 
inadequate.  In  191 5  the  exports  were  valued  at  $700,- 
000,000  less  than  those  of  191 3,  notwithstanding  the  in- 
crease in  prices,  which  averaged  fully  20  per  cent,  but  in 
the  year  191 6  both  sales  and  purchases  abroad  were  in- 
creased, the  volume  of  exports  being  surprisingly  near 
normal. 

In  the  next  three  years  enormous  totals  were  rolled  up. 
The  figures  for  that  trade  are  given  herewith,  expressed 
in  millions  of  pounds  sterling.  The  exports  include  both 
foreign  and  domestic  products. 


Year 

Imports 

Exports 

Total 

iqi-i 

£   768 
1,065 

1,319 
1,632 

£634 
525 
529 
962 

£1,403 
1,590 
1,848 

2,594 

IQ17 

I918 

I919 

The  outstanding  fact  in  the  recent  trade  is  the  over- 
whelming excess  of  imports.  It  was  this  excess  that  caused 
the  pound  sterling  to  decline  until  it  was  worth  at  times 
between  $3  and  $3.50  in  American  money,  instead  of  its 
par  value  of  $4.86. 

Before  the  war  English  imports  exceeded  exports  each 


COMMERCE  OF  THE  UNITED   KINGDOM     277 

year  by  about  £150,000,000.  Interest  on  foreign  invest- 
ments, shipping  credits,  and  bank  commissions  more  than 
offset  this.  But  the  United  Kingdom  came  out  of  the  war 
in  an  entirely  different  position  from  that  held  in  1914. 
David  Lloyd  George  stated  in  1919  that  foreign  invest- 
ments aggregating  £1,000,000,000  had  been  sold  by  Eng- 
lishmen during  the  war,  while  government  securities  ex- 
ceeding that  sum  in  value  had  been  placed  in  foreign  hands. 
While  the  last  item  was  more  than  offset  by  loans  made 
to  allied  nations,  including  Russia,  neither  the  principal 
nor  interest  on  such  loans  were  available.  Consequently, 
the  United  Kingdom  could  no  longer  depend  upon  invisible 
exports  to  balance  a  huge  excess  of  imports.  Reduction 
of  imports  and  increase  of  exports  became  an  imperative 
necessity,  just  as  in  the  case  of  Germany.  Hence,  there 
has  arisen  a  new  interest  in  the  promotion  of  British  ex- 
ports, an  interest  manifested  by  the  government  as  well 
as  by  private  indi\'iduals.  Various  government  commis- 
sions are  working  on  the  problem,  while  such  associations 
as  the  Federation  of  British  Industries,  organized  in  19 16, 
with  a  membership  of  15,000  manufacturers  and  exporters 
representing  a  capital  of  $2,000,000  or  more,  have  entered 
upon  a  new  and  determined  campaign  to  promote  the  sale 
of  British  products  abroad. 

Another  effect  of  the  war  has  been  a  drawing  together 
of  the  British  Empire.  As  an  indication  of  this  the  Finance 
Act  of  19 19  is  of  the  highest  importance.  This  act  adopted 
a  preferential  reduction  of  duties  in  favor  of  certain  em- 
pire products,  including  tea,  coffee,  sugar,  dried  fruits, 
cinema  films,  clocks,  watches,  motor-cars,  and  cycles.  It 
is  to  be  noted  that  duties  placed  on  many  of  these  articles 
during  the  war  were  retained. 


278    FOREIGN  TRADE   OF   UNITED   STATES 

BIBLIOGRAPHY 

BowLEY,  Arthur  L.     A  Short  Account  of  England's  Foreign  Trade 

in  the  Nineteenth  Century  ;    Its  Economic  and  Social  Results. 

New  York,  1905. 
Byers,  Norman  R.     World  Commerce  in  Its  Relation  to  the  British 

Empire.     London,  191 6. 
Cox,   Harold.     The    United   Kingdom  and  Its   Trade.     London, 

1902. 
Cress,  Edward.     A71  Outline  of  Industrial  History.     London,  1915. 
Cunningham,  W.     The  Growth  of  English  Industry  and  Commerce 

in  Modern  Times,  2  vols.      Cambridge,  England,  1907. 
Great  Britain.     Board  of  Trade.     British  and  Foreign  Trade 

and  Industry.     London,  1903. 
Great  Britain.     Statistical  Abstract.     Annual.     London. 
Perris,  G.  H.     Industrial  History  of  Modern  England.     New  York, 

1914. 
Porter,  G.  R.     The  Progress  of  the  Nation.    A  new  edition  edited 

by  F.  W.  Hirst.     London,  191 2. 
Pulsford,  Edward.     Commerce  and  the  Empire  :    1914  and  After. 

London,  191 7. 


CHAPTER  XXI 

ORGANIZATION  AND   CO-OPERATION   IN  FOREIGN 
TRADE  AS  EXEMPLIFIED   BY   GERMANY 

Foreign  Trade  Essential  to  Germany. — The  pressure  of 
population  has  long  been  felt  in  Germany.  With  an  area 
considerably  less  than  that  of  Texas,  the  population  in  19 14 
was  about  70,000,000.  The  land  is  not  particularly  pro- 
ductive, and  the  major  part  of  it  has  been  held  in  large 
estates  and  worked  by  agricultural  laborers,  thus  furnish- 
ing subsistence  to  many  less  people  than  would  be  the  case 
under  a  system  of  small  indi\idual  holdings.  In  normal 
times  the  production  of  foodstuffs  falls  far  short  of  the  con- 
sumption, necessitating  a  large  importation  of  grain,  flour, 
meat,  and  other  food  products. 

Under  these  conditions  foreign  trade  became  a  vital 
necessity  for  the  people  of  Germany.  It  was  only  by  sell- 
ing the  products  of  their  labor  in  foreign  markets  that  the 
requisite  foodstuffs  could  be  obtained.  It  is  estimated 
that  less  than  25  per  cent  of  the  population  is  engaged  in 
agriculture,  and  the  movement  from  the  rural  districts  to 
the  urban  industrial  centres  has  been  increasing  year  by 
year.  Over  two-thirds  of  the  exports  of  Germany  have 
consisted  of  manufactured  articles,  many  of  them  highly 
wrought,  in  which  the  labor  involved  constituted  a  large 
part  of  their  value.  Fully  one-half  of  the  imports  has 
consisted  of  raw  materials  for  use  in  manufacturing,  while 
about  one- third  of  the  commodities  imported  has  been  food 
products. 

It  is  the  facts  just  set  forth  that  explain  why  Germany 
made  such  a  supreme  effort  to  develop  foreign  markets. 
Stubborn  persistence,  indefatigable  energy,  stern  deter- 
mination, and  concentrated  effort  marked  every  step  of  the 

279 


28o    FOREIGN  TRADE  OF  UNITED   STATES 

progress  Germany  made  in  developing  her  foreign  trade. 
Her  unwavering  policy  of  trade  extension  at  all  costs  re- 
sulted from  the  conviction  that  the  very  existence  of  Ger- 
many as  a  world  power  depended  upon  creating  an  outlet 
for  her  labor  through  the  sale  of  manufactured  goods  in 
the  markets  of  other  countries.  The  only  alternative 
was  the  division  of  her  large  estates  into  small  holdings 
intensively  cultivated,  or  in  a  great  emigration  to  other 
countries  offering  better  opportunities. 

Both  of  these  were  opposed  to  the  imperial  poHcy, 
which,  on  the  one  hand,  catered  to  the  agrarian  and  capi- 
talistic classes,  and,  on  the  other,  desired  to  maintain  Ger- 
many's position  and  prestige  by  means  of  a  rapidly  growing 
population  of  high  efficiency. 

Hence  the  abounding  energy  of  the  nation,  its  genius 
for  organization,  its  devotion  to  scientific  research,  and  its 
willingness  to  subordinate  the  individual  to  the  general 
welfare  were  used  to  so  co-ordinate  and  unify  industry 
that  it  might  support  the  largest  possible  population  by 
means  of  manufacturing,  and  extend  its  foreign  trade  to  the 
uttermost  limits. 

The  German  System. — The  system  by  which  Germany 
succeeded  in  building  up  her  foreign  trade  was  as  thor- 
oughgoing as  it  was  unique.  It  was  the  result  of  a  far- 
seeing,  carefully  worked  out  national  plan,  in  which  the 
strong  arm  of  the  government  was  ever  ready  to  give  the 
needed  aid  and  direction.  There  was  co-operation  and  co- 
ordination in  German  industry  and  in  German  foreign 
trade  that  existed  in  no  other  nation.  The  government- 
owned  railways  and  waterways,  the  government  banks,  the 
syndicates  or  organizations  of  merchants  and  manufacturers 
under  government  supervision,  the  thoroughly  correlated 
educational  system  extending  from  the  elementary  grades 
through  the  universities — these  all  worked  together  to 
achieve  one  end,  the  pre-eminence  of  Germany  in  power, 
position,  industry,  commerce,  and  wealth. 


FOREIGN  TRADE  OF   GERMANY  281 

The  German  Government  was  called  paternalistic,  be- 
cause it  aimed  to  influence  or  control,  directly  or  indirectly, 
many  activities  that  in  this  and  other  nations  are  left 
wholly  or  partly  to  the  individual.  This  paternalistic 
character  was  clearly  indicated  in  the  aid  the  government 
gave  industry  and  conmierce.  Vast  internal  improvements ; 
a  great  system  of  state-owned  railways  and  waterways;  the 
best  harbor  and  terminal  faciHties  in  the  world;  a  close 
supervision  over  manufacturing,  commerce,  and  banking; 
a  government  poHcy  of  zealously  guarding  the  interests  of 
its  manufacturers,  merchants,  and  ship-owners  who  were 
competing  with  those  of  other  nations;  a  well-defined 
policy  of  negotiating  commercial  treaties  with  other  na- 
tions to  foster  German  trade;  the  maintenance  of  a  great 
staff  of  government  workers  whose  function  it  was  to  keep 
in  close  touch  with  every  foreign  market  in  the  world  and 
with  every  development  influencing  trade,  and  to  give  valu- 
able and  specific  trade  information  to  business  men  and 
corporations;  the  closest  co-operation  between  government 
bureaus  and  chambers  of  commerce — these  are  only  a  few 
of  the  methods  taken  by  the  imperial  government  to  ad- 
vance German  industry  and  commerce. 

Five  Factors  in  German  Organization. — The  unification 
of  Germany  as  it  affected  the  foreign  trade  of  the  nation 
may  be  understood  by  considering  in  some  detail  the  forces 
that  were  co-ordinated  to  produce  the  results  achieved. 
These  may  be  grouped  under  the  following  heads: 

1.  Education. 

2.  Government  control  of  railways  and  waterways. 

3.  The  work  of  syndicates. 

4.  The  co-operation  of  banks  in  industry. 

5.  The  tariff  poHcy. 

I.  Education. — Education  in  Germany  was  compul- 
sory, every  child  being  required  to  attend  the  elementary 


282     FOREIGN  TRADE   OF   UNITED   STATES 

schools  for  at  least  eight  years.  The  schools  gave  practical 
training,  the  aim  being  to  educate  the  child  to  j6l11  the  niche 
he  was  designed  for,  so  that  he  might  do  his  part  in  serving 
the  state  to  which  he  belonged.  Obedience,  patriotism,  and 
industry  were  inculcated.  Continuation  schools  were  pro- 
vided for  boys  and  girls  who  graduated  from  the  elementary 
schools  and  went  to  work.  In  most  of  the  cities  of  Germany 
attendance  at  these  schools  was  compulsory  for  boys  be- 
tween fourteen  and  seventeen. 

The  effect  upon  industry  of  the  training  given  in  the  con- 
tinuation schools  was  unquestionably  very  great.  Greater 
skill,  intelligence,  and  efficiency  in  the  performance  of 
their  daily  tasks  and  a  better  understanding  of  the  work 
Germany  required  of  her  citizens  are  directly  traceable  to 
the  instruction  given  in  these  trade  schools. 

Students  intending  to  study  in  the  universities  received 
their  preparation  in  the  gymnasiums.  The  German  uni- 
versities are  state  institutions,  and  under  the  old  regime 
they  took  a  very  definite  and  important  part  in  the  de- 
velopment of  the  empire.  Their  influence  upon  industry 
and  commerce  was  great.  They  planned  to  train  for  the 
professions  and  for  the  higher  class  of  commercial  positions 
as  well  as  for  the  civil  service;  they  emphasized  the  natural 
sciences  and  encouraged  the  application  of  the  knowledge 
gained  through  study  and  research  to  industry;  thus 
scientific  study  was  adapted  to  the  economic  needs  of  the 
nation  and  the  universities  served  as  laboratories  in  which 
scientific  methods  were  worked  out  for  the  benefit  of  in- 
dustry. 

2.  Government  Control  of  Railways  and  Waterways. — 
Fully  90  per  cent  of  the  railways  of  Germany  were  owned 
and  controlled  by  the  state.  The  one  paramount  idea  in 
railroad  administration  in  Germany  was  the  promotion  of 
industry  and  trade  through  service.  The  earning  of  divi- 
dends was  entirely  secondary,  though  the  net  income  de- 
rived by  the  government  from  this  source  in  19 11  was  $178,- 


FOREIGN  TRADE  OF   GERMANY  283 

000,000.  This  sum  would  have  been  greatly  increased  had 
not  vast  sums  been  spent  in  making  improvements  and  ex- 
tensions. Wherever  investigation  showed  that  industry 
might  be  stimulated  to  an  appreciable  degree  by  railroad 
extension,  by  improved  service,  or  by  discrimination  in 
rates,  the  required  action  was  taken.  There  w^as  no  con- 
flict between  the  interests  of  the  railroads  and  those  of  the 
shipper,  for  the  very  simple  reason  that  the  interests  were 
identical.  In  the  management  of  the  railways  every  effort 
was  made  to  provide  adequate  terminal  facilities,  that 
kept  pace  with  the  industrial  needs  of  each  comimunity; 
sectional  favoritism  was  not  apparent,  for  it  w^as  generally 
recognized  that  the  railways  must  serve  impartially  and 
fairly  the  whole  nation,  if  the  nation  was  to  prosper.  The 
railways  were  operated  in  connection  wath  the  splendid 
system  of  inland  waterways  that  were  well  developed  in 
Germany.  The  more  bulky  raw  materials,  such  as  coal, 
iron  ore,  lumber,  and  grain,  were  transported  at  very  low 
rates  over  the  inland  waterways. 

Some  of  the  definite  ways  in  which  the  transportation 
facilities  were  used  to  aid  the  exporter  were  as  follows: 

(a)  Export  shipments  were  accorded  lower  rates  than 
domestic  freight.  These  rates  applied  to  both  small  and 
large  shipments.  Often  an  exporter  who  would  otherwise 
have  been  unable  to  compete  in  foreign  markets  with  the 
exporters  of  other  nations  w^as  thus  assisted  to  build  up  an 
extensive  and  profitable  export  trade.  The  authorities 
did  not  hesitate  to  reduce  the  rates  on  imported  raw  ma- 
terials as  well  as  on  manufactures  for  export  when  it  ap- 
peared that  the  nation's  trade  could  be  so  extended. 

(b)  The  railways  were  administered  as  one  system, 
though  they  wxre  owned  by  different  states.  Shipments 
were  sent  over  the  most  direct  route  and  were  given  ad- 
vantage of  the  cheapest  rate.  When  there  was  congestion 
at  one  port,  exports  were  diverted  from  it  and  thus  delays 
were  avoided. 


284    FOREIGN  TRADE   OF  UNITED   STATES 

(c)  Railway  and  waterway  tariffs  were  published  which 
gave  the  exact  rate  for  transportation  of  every  class  of 
goods  from  German  points  to  foreign  cities.  These  rate 
books  were  made  clear  and  simple  so  that  the  exporter  had 
no  difficulty  in  ascertaining  the  freight  on  any  proposed 
shipment. 

(d)  Arrangements  were  made  whereby  export  shipments 
might  be  made  from  an  inland  point  on  a  through  bill  of 
lading,  which  relieved  the  shipper  of  further  trouble. 
Trans-shipments  were  made  wherever  necessary,  and  all 
details  atteaided  to  by  the  railway  officials.  It  mattered 
not  to  what  far  distant  point  in  Asia  or  Africa  or  South 
America  the  shipment  was  destined,  if  it  was  sent  from  a 
German  point  by  a  German  carrier,  it  would  be  delivered 
without  further  trouble  to  the  shipper. 

3.  The  Work  of  Syndicates. — Competing  firms  in  the 
various  manufacturing  lines  were  organized  in  Germany 
into  syndicates,  which  practically  control  production  and 
distribution  in  their  respective  lines.  Production  was  ap- 
portioned among  the  member  firms  by  the  syndicate;  sales 
arrangements  were  made  by  the  syndicate,  which  also  fixed 
the  scale  of  foreign  and  domestic  prices,  the  rate  of  interest, 
the  terms  of  credit,  and  the  wage  scale.  Member  firms 
were  penalized  severely  for  non-observance  of  the  arrange- 
ments entered  into  with  the  syndicate,  and  failure  to  live 
up  to  the  syndicate  contracts  would  eventually  mean  the 
financial  ruin  of  the  firm  following  such  a  course.  The 
syndicate  was  organized  as  an  independent  company,  the 
members  entering  into  agreements  or  contracts  with  it 
that  were  binding  under  the  laws. 

The  advantages  claimed  for  the  syndicates  in  the  pro- 
motion of  foreign  trade  are  that  they  so  organize  and  reg- 
ulate industry  as  to  cheapen  production,  by  the  preven- 
tion of  waste,  undue  competition  in  foreign  fields,  and  the 
overlapping  of  industrial  enterprises. 


FOREIGN  TRADE  OF   GERMANY  285 

4.  The  Co-Gperation  of  Banks  in  Industry. — The  banks 
of  Germany  have  been  highly  centralized.  Elmer  Roberts, 
in  an  article  entitled  "  German  Good- Will  Towards  Trusts," 
published  in  Scribner^s  Magazine  for  March,  191 1,  says  in 
speaking  of  the  German  industrial  system: 

Seven  Bedin  banks  form  the  core  of  the  system.  They  have 
shares  usually  amounting  to  a  paramount  interest  in  about  fifty 
of  the  large  provincial  banks,  and  these  in  turn  are  part  owners 
of  the  smaller  institutions  of  their  provinces,  so  that  agreements 
among  the  larger  banks  in  Berlin  have  the  effect  of  decrees  upon 
the  twigs,  as  it  were,  of  the  financial  tree,  and  upon  the  detached 
undergrowth.  .  .  .  The  resources  of  the  Berlin  group  and  their 
dependencies  exceed  M.  8,000,000,000,  or  $2,000,000,000.  These 
details  appear  necessary  to  an  understanding  of  the  economic  uni- 
fication in  Germany,  for  it  is  through  the  fibres  of  the  banking 
network  that  the  centralization  is  accomplished.  German,  unlike 
American,  banks  have  direct  participation  in  industrial  enterprise. 
The  bank  that  gives  credit  to  a  manufacturing  company  has  shares 
in  the  company  and  is  represented  on  the  board. 

German  banks  were  in  the  closest  relation  with  the 
government;  the  foreign  policy  of  the  nation  was  assisted 
in  every  way  possible  by  the  banks,  which  made  foreign 
loans  to  facilitate  German  diplomacy,  established  branch 
banks  in  countries  with  which  the  government  was  negotiat- 
ing commercial  treaties  designed  to  foster  foreign  trade, 
and  in  general  regulated  their  policy  in  accordance  with  the 
plans  of  the  government.  They  were  always  ready  to 
assist  in  financing  any  project  for  internal  improvements 
that  promised  to  promote  German  trade,  and  to  extend 
their  aid  in  the  development  of  colonies  and  of  countries 
in  which  German  traders  were  trying  to  get  a  foothold. 
The  trade  and  credit  information  which  they  were  able  to 
supply  their  customers,  the  Kberal  extension  of  credit 
which  they  made  to  exporters,  the  activity  of  their  branches 
maintained  in  foreign  countries,  all  had  most  beneficent  in- 
fluence on  the  industrial  and  commercial  growth  of  the  na- 
tion. 


286    FOREIGN  TRADE  OF  UNITED   STATES 

5.  Germany's  Bargaining  Tariff. — Germany  adopted 
the  protective  tariff  system  in  1879  in  response  to  the  de- 
mand of  her  newly  established  manufacturing  plants, 
which  were  unable  to  compete  in  the  home  market  with  the 
products  of  those  nations,  especially  the  United  Kingdom, 
in  which  the  industry  of  manufacturing  was  highly  de- 
veloped. Raw  materials  for  manufactures  alone  were 
exempted  from  the  high  duties  imposed;  foodstuffs  were 
subjected  to  heavy  import  duties  in  order  to  protect  the 
powerful  agrarian  interests,  which  included  the  members  of 
the  leading  aristocratic  families  of  the  nation.  In  1901 
the  duties  on  foodstuffs  and  manufactures  were  increased, 
so  that  meat,  cereals,  flour,  machinery,  petroleum,  and  to- 
bacco were  all  subjected  to  very  high  import  duties.  This 
increase  in  duties  affected  the  United  Kingdom  and  the 
United  States  more  than  it  did  other  nations.  Since  the 
United  States  had  previously  imposed  heavy  duties  on 
many  of  the  manufactured  articles  imported  from  Germany, 
the  retaliation  was  quite  natural. 

Germany  modified  her  high  protective  tariff  by  a  system 
of  commercial  treaties  with  other  nations,  in  which  mutual 
concessions  were  made,  Germany  reducing  the  tariff  on 
specified  articles  in  exchange  for  reductions  or  trade  con- 
cessions she  desired.  Germany's  tariff  laws  have  thus  been 
framed  so  as  to  give  every  advantage  possible  under  a  pro- 
tective system  to  the  industry  of  the  nation.  This  is 
especially  true  of  the  tariff  concessions  made  in  commercial 
treaties  with  other  nations;  each  concession  has  been  made 
only  after  thorough  investigation,  and  each  has  invariably 
resulted  in  gain  to  Germany.  This  trading  feature  of  her 
tariff  policy  enabled  Germany  to  secure  valuable  conces- 
sions in  Russia  and  other  countries  that  greatly  increased 
her  trade  opportunities.  Germany  imported  and  must 
import  enormous  quantities  of  such  raw  materials  as  raw 
cotton,  hides  and  skins,  copper,  iron  ore,  wool,  and  textile 
fibres;    she  exported  millions  of  dollars  worth  of  manu- 


FOREIGN  TRADE  OF   GERMANY 


287 


factures.  This  trade  was  greatly  facilitated  by  the  system 
of  granting  reductions  of  the  tariff  on  raw  materials  in  re- 
turn for  concessions  in  the  duties  placed  on  German  manu- 
factures by  other  nations.  It  is  this  system  that  has  con- 
vinced many  EngHsh  economists  of  the  wisdom  of  England's 
abandoning  her  free-trade  policy  for  a  protective  tariff  under 
which  reciprocal  trade  concessions  between  the  United 
Kingdom  and  other  nations  maintaining  a  protective  tariff 
could  be  made. 

The  Growth  of  Germany's  Foreign  Trade. — Let  us  now 
see  what  the  system,  the  general  features  of  which  have 
just  been  outlined,  accomplished  in  the  development  of 
Gennany's  trade  with  other  nations.  The  value  of  the 
imports  and  exports  at  different  periods  is  given  in  the  fol- 
lowing table,  which  is  based  upon  statistics  compiled  by  the 
Bureau  of  Foreign  and  Domestic  Commerce  of  the  United 
States.  The  table  is  for  the  special  trade,  which  includes 
only  the  imports  for  consumption  and  the  exports  of  do- 
mestic products.  The  values  are  expressed  in  millions  of 
dollars. 


Year 


Imports 


Exports 


Total 


1872 
1880 
1890 
1900 
19IO 
1913 


775 

670 

986 

1,372 

2,126 

2,563 


551 

688 

792 

1,097 

1.778 

2,403 


1,326 

1,358 

1,777 
2,469 

3,904 
4,966 


Between  1880  and  19 13  the  foreign  trade  of  Germany 
increased  nearly  266  per  cent.  As  in  the  case  of  England, 
the  imports  exceeded  the  exports  each  year.  This  differ- 
ence was  offset  by  the  interest  on  German  foreign  invest- 
ments, which  were  estimated  at  $8,000,000,000  in  19 13, 
and  by  the  earnings  of  her  great  merchant  marine,  second 
in  1 9 14  only  to  that  of  the  United  Kingdom.  Changes  in 
the  methods  of  compiling  statistics  of  commerce  make  an 


288    FOREIGN  TRADE   OF   UNITED   STATES 

exact  comparison  impossible,  but  in  general  imports  doubled 
between  1880  and  1900,  while  the  increase  in  exports  was 
only  60  per  cent;  between  1900  and  19 14  exports  increased 
faster  than  imports,  more  than  doubling  in  value. 

Imports. — Nearly  one-half  of  the  imports  of  Germany 
consisted  of  raw  materials,  the  largest  single  item  imported 
being  raw  cotton.  Copper,  certain  grades  of  iron  ore,  wool, 
hides  and  skins,  and  textile  fibres  are  other  raw  materials 
imported  in  great  quantity.  About  one-third  of  the  im- 
ports have  been  foodstuffs.  Though  Germany  produces 
large  quantities  of  wheat,  rye,  and  barley,  the  production 
of  cereals  falls  far  short  of  the  consumption,  with  the  ex- 
ception of  rye.  In  normal  times  one-third  of  the  wheat 
consumed  is  imported.  Barley,  meats,  dairy  products, 
eggs,  coffee,  tea,  cocoa,  lard,  and  oleomargarine  are  other 
foodstuffs  for  which  Germany  has  afforded  a  good  market. 

Exports. — The  greatest  manufacturing  plants  in  Germany 
have  been  those  devoted  to  the  output  of  iron  and  steel 
and  their  manufactures.  Consequently,  such  products 
have  held  first  place  in  her  exports.  Germany  had  an 
abundance  of  coal  and  iron  ore,  which  are  the  basis  of  this 
industry.  Her  coal,  however,  is  of  a  low  grade,  and  its 
cost  per  ton  at  the  mine  is  considerably  greater  than  in 
England  and  about  twice  as  great  as  in  the  United  States, 
where  the  coal  lies  at  or  near  the  surface  of  the  ground. 
Some  of  the  German  coal-mines  are  over  3,000  feet  deep. 
Cheaper  labor  costs,  cheaper  transportation,  and  the  ap- 
plication of  scientific  methods  enabled  her  to  compete  in 
the  iron  and  steel  industry  with  England  and  the  United 
States.  In  1890  the  output  of  pig  iron  in  Germany  was 
4,500,000  tons;  in  1913  it  was  19,000,000  tons.  This 
made  Germany  second  of  all  the  nations  in  the  production 
of  pig  iron.  This  explains  why  her  exportation  of  machin- 
ery increased  from  about  $13,200,000  in  1887  to  over  $157,- 
000,000  in  191 2. 

The  manufacture  of  textiles  was  next  in  importance  in 


FOREIGN  TRADE  OF   GERMANY  289 

Germany.  Consequently,  the  importation  of  cotton,  wool, 
and  raw  silk  has  been  very  large,  and  the  exportation  of  the 
finished  fabrics  second  only  to  that  of  the  United  King- 
dom. The  value  of  the  cotton,  wool,  and  silk  fabrics  ex- 
ported increased  from  $65,000,000  in  1887  to  $241,000,000 
in  1912. 

Other  exports  of  importance  are  aniline  dyes,  beet-sugar, 
copper  wire,  leather  and  leather  manufactures,  surgical 
instruments,  paper  manufactures,  porcelain,  pottery,  glass- 
ware, hardware,  chemical  and  pharmaceutical  products, 
electrical  appHances,  coal-tar  derivitives  (dyes,  perfumes, 
explosives,  etc.),  and  clothing.  These  were  the  principal 
manufactures  exported.  Coal  and  coke  were  the  raw  ma- 
terials exported  in  greatest  quantity.  In  addition  to  beet- 
sugar,  in  the  production  of  which  Germany  leads  the  world, 
rye  and  potatoes  are  food  products  exported  prior  to  19 14. 

Direction  of  Trade. — In  191 2  and  1913  the  United  States 
was  the  largest  exporter  to  Germany,  while  the  United 
Kingdom  was  Germany's  best  customer.  The  British  col- 
onies, Russia,  Austria-Hungary,  France,  and  Latin  America 
are  other  countries  that  have  had  most  extensive  trade  with 
Germany.  The  principal  commodities  Germany  has  drawn 
upon  the  United  States  for  are  such  staple  food  products  as 
wheat,  meat,  dried  fruits,  corn,  lard,  and  oleomargarine,  and 
such  raw  materials  as  cotton,  copper,  lumber,  tobacco,  and 
mineral  oils.  Machinery  and  other  manufactures  have 
also  been  imported  from  the  United  States.  In  exchange 
for  these  Germany  has  sent  us  aniline  dyes,  toys,  earthen- 
ware, pottery,  caoutchouc  and  gutta-percha,  gloves  and 
other  articles  of  wearing  apparel,  wooden  manufactures, 
pictures  and  picture  postal  cards.  Germany  exported 
over  $100,000,000  worth  of  toys  annually  and  over  $60,- 
000,000  worth  of  picture  postal  cards.  We  have  bought 
from  Germany  for  the  most  part  highly  wrought  manu- 
factures in  which  the  labor  cost  is  the  highest  item,  and  have 
given  in  return  raw  materials  and  foodstuffs.     In  19 13  Ger- 


290    FOREIGN  TRADE   OF  UNITED   STATES 

man  imports  from  the  United  States  were  valued  at  $331,- 
684,000,  while  her  exports  to  the  United  States  were  valued 
at  only  $188,963,000.  Germany's  trade  has  not  been  con- 
fined to  a  few  countries.  Her  salesmen  have  invaded  every 
market  in  the  world;  they  invariably  spoke  the  language 
of  the  country,  were  quick  to  adapt  themselves  to  the  con- 
ditions of  each  market,  have  had  authority  to  grant  liberal 
credit  terms,  were  alw^ays  prepared  to  quote  c.  i.  f.  prices 
(which  include  insurance  and  freight),  and  often  were  able 
to  quote  lower  prices  than  those  offered  by  their  rivals 
from  other  countries.  In  many  lines  their  manufactures 
have  been  of  a  lower  and  cheaper  grade  than  those  pro- 
duced by  either  the  United  Kingdom  or  the  United  States, 
which  accounts  for  the  lower  prices  quoted.  They  have 
taken  an  infinite  amount  of  pains  to  supply  the  market 
with  the  land  and  quahty  of  goods  in  demand,  have  filled 
small  orders  with  the  same  care  given  to  large  ones,  and 
given  expert  attention  to  the  packing  of  the  goods.  German 
salesmen  and  German  mercantile  establishments  success- 
fully estabhshed  themselves  in  Chile,  Brazil,  Argentina, 
and  other  Latin  American  countries,  in  Asia  Minor,  Tur- 
key, China,  Japan,  India,  Syria,  and  in  every  one  of  the 
British  colonies. 

Success  of  the  German  System. — So  far  as  it  affected  the 
position  of  Germany  in  foreign  trade,  the  commercial  sys- 
tem outlined  was  a  success.  Its  effect  upon  the  political 
and  industrial  freedom  of  the  masses,  upon  the  distribution 
of  wealth  and  privileges  among  its  citizens,  and  upon  the 
character  and  ideals  of  the  nation  is  another  question,  which 
need  not  be  considered  here.  It  is  generally  agreed  that 
such  a  centralized  system  is  not  practicable  in  the  United 
States  or  in  any  country  that  seeks  to  develop  the  individual 
through  democracy.  There  are,  however,  certain  lessons 
we  can  learn  from  Germany.    These,  in  brief,  are  as  follows: 

I.  Our  educational  system  could  be  developed  so  as 


FOREIGN  TRADE  OF   GERMANY  291 

to  provide  practical  and  thorough  vocational  training 
for  every  student. 

2.  Better  transportation  and  terminal  facilities  could 
be  provided.  While  our  railway  mileage  exceeds  that 
of  any  other  nation  and  our  equipment  is  unequalled, 
the  service  rendered  is  still  far  from  satisfactory,  and  co- 
operation between  the  railway  and  the  shipper  is  little 
developed.  Our  inland  waterways,  with  the  exception 
of  the  Great  Lakes,  are  sadly  neglected,  with  the  result 
that  railroad  traffic  is  often  so  badly  congested  as  to 
cause  long  and  expensive  delays. 

3.  Our  tariff  might  be  so  framed  as  to  make  the  trading 
feature  a  powerful  influence  in  trade  promotion. 

Effects  of  the  Reparation  Payments. — The  future  of 
Germany's  foreign  trade  is  bound  to  be  largely  determined 
by  the  terms  of  the  peace  settlement.  Heavy  remittances 
to  other  countries  as  reparation  payments  are  provided 
for  in  the  treaty  of  peace.  The  provision  requiring  the 
payment  of  20,000,000,000  marks  by  May,  1921,  made 
it  possible  for  Germany  to  count  ships,  railroad  equip- 
ment, machinery,  coal,  securities,  and  other  commodities 
on  this  payment.  The  balance  is  to  be  paid  by  means  of 
bonds.  Other  bonds  amounting  to  $10,000,000,000  figure 
in  the  reparation  payment,  these  bonds  to  draw  interest 
of  2]/i  per  cent  up  to  1926,  the  rate  to  be  increased  after 
that  date.  The  interest  on  the  total  amount  of  bonds  will 
exceed  $300,000,000  annually  for  the  years  1921  to  1926. 
With  the  increased  rate  of  interest  after  1926  and  the  other 
reparation  payments  provided  for,  the  total  payments  re- 
quired of  Germany  each  year  will  greatly  exceed  $500,- 
000,000.  Some  estimates  make  the  sum  approach  a  billion 
dollars  a  year.  The  amount  will  depend  upon  the  decision 
of  the  Reparation  Commission. 

The  method  of  payment  is  of  highest  importance.  Pay- 
ment in  gold  is  impossible.    To  attempt  this  would  mean 


292    FOREIGN  TRADE   OF  UNITED   STATES 

to  drain  all  the  gold  out  of  the  country  long  before  the 
reparation  claims  were  paid.  Again  we  are  faced  with 
the  fact  that  balances  between  nations  are  paid  in  goods, 
in  services,  or  in  securities,  rather  than  in  gold.  In  this 
particular  case,  it  is  goods  that  will  settle  the  debts.  No 
longer  is  Germany  a  leading  nation  in  the  carrying  trade. 
Tourists  there  may  and  probably  will  be,  but  their  ex- 
penditures will  be  insufficient  to  cover  the  amount  payable 
each  year  to  other  nations.  Securities  will  hardly  prove 
attractive  until  such  time  as  the  great  bonded  debt  is  par- 
tially paid  ofT.  Even  stocks  and  bonds  of  German  busi- 
ness firms  will  not  find  any  wide  market  for  some  time. 
Goods  alone  will  pay  the  bill. 

This  can  be  done  only  if  German  exports  exceed  Ger- 
man imports  regularly  throughout  the  period  of  reparation. 
As  we  have  seen,  German  imports  exceeded  exports  in 
value  in  the  period  preceding  the  war.  A  fundamental 
change  is  necessary  if  Germany  is  to  pay  the  Allies  the 
claims  agreed  upon.  German  exports  must  expand;  Ger- 
man imports  must  contract.  In  other  words,  Germany 
must  give  to  the  rest  of  the  world  more  goods  than  are 
received  from  the  rest  of  the  world. 

This  means  extended  markets  for  German  goods,  with 
a  restricted  market  in  Germany  for  the  goods  of  other  na- 
tions. Nothing  but  a  huge  annual  excess  of  exports  over 
imports  will  enable  the  reparation  claims  to  be  met.  In 
order  that  this  may  be  accomplished,  governmental  ac- 
tion will  be  necessary.  This  action  may  take  the  form 
of  a  high  tariff  for  the  purpose  of  restricting  certain  classes 
of  imports,  of  a  system  of  bounties  on  exports,  of  preferen- 
tial railroad  rates  on  exports  more  far-reaching  than  any- 
thing ever  before  attempted,  and  of  a  reduction  of  taxa- 
tion in  the  case  of  firms  manufacturing  for  export. 

The  restriction  of  imports  can  be  only  along  certain 
lines.  Raw  materials  for  use  in  the  manufacturing  indus- 
tries of  the  nation  and  essential  foodstuffs  will  be  urgently 


FOREIGN  T^ADE  OF   GERMANY  293 

required.  Luxuries  are  the  most  obvious  articles  to  be 
subjected  either  to  a  total  prohibition  or  to  a  duty  so  high 
as  to  practically  amount  to  that.  The  stimulation  of  greater 
food  production  will  be  an  economic  necessity. 

The  effect  upon  the  trade  of  the  world  of  the  necessity 
of  Germany's  exports  exceeding  her  imports  is  a  question 
of  the  greatest  importance.  If  the  reparation  claims  are 
paid,  as  they  must  be,  in  goods,  this  means  a  great  exten- 
sion of  German  markets  and  of  German  export  trade.  Un- 
less the  nations  of  the  world  are  wilUng  to  see  such  a  situa- 
tion develop,  they  may  as  well  give  up  a'  'bought  of 
reparation  from  Germany. 

BIBLIOGRAPHY 

Dawson,  William  H.     Industrial  Germany.    London,  1913. 
Dawson,  William  H.     The  Evolution  of  Modern  Germany.     New 

York,  1909. 
Graham,   James.     German  Commercial  Practice   with   the   Export 

and  Import  Trade.     London  and  New  York,  1904-6. 
Herzog,   Siegfried.     The  Future  of  German  Industrial  Exports. 

New  York,  191 8. 
Howard,  Earl  D.     The  Cause  atid  Extent  of  the  Recent  Industrial 

Progress  of  Germany.     Boston,  1907. 
Howe,  Frederick  C.     Socialized  Germany.     New  York,  191 5. 
MiLLiOND,   Maurice.     The  Ruling  Caste  and  Frenzied  Trade  in 

Germany.     Boston,  1916. 
PoGSON,  G.  Ambrose.     Germany  and  Its  Trade.     New  York,  1903. 
Shadwell,  Arthur.     Industrial  Efficiency ;   a  Comparative  Study 

of  the   Industrial   Life   of  England,    Germany,   and   America. 

^ew  York,  1918. 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.     German 

Trade  and  the  War.     Commercial  and  Industrial  Condition  in 

War  Tune  and  the  Future  Outlook.     (Miscellaneous  series  no. 

65.)     1918. 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.    Statistics 
of  German  Trade,  1909-1913.     (Miscellaneous  series  no.  75.) 
1918. 


CHAPTER  XXII 
THE  FOREIGN  TRADE  OF  OTHER  NATIONS 

France. — A  brief  review  of  the  foreign  trade  of  other  na- 
tions, with  special  reference  to  their  trade  with  the  United 
States,  is  now  in  order.  Next  to  the  United  Kingdom,  the 
United  States,  and  Germany,  the  nation  having  the  largest 
foreign  trade  is  France.  Normally,  France  is  our  fourth 
best  customer,  ranking  next  to  Canada  in  the  value  of  the 
commodities  obtained  from  us.  In  191 5  and  191 6  the  war 
imports  of  this  nation  rose  so  far  above  normal  as  to  place 
her  second  only  to  the  United  Kingdom  in  our  list  of  cus- 
tomers. Ordinarily,  France  buys  about  11  per  cent  of  her 
imports  from  us  and  sells  6.5  per  cent  of  her  exports  to  us. 
Our  sales  to  France  exceed  our  purchases  by  some  $20,- 
000,000  annually. 

The  fact  that  France  has  been  passed  in  recent  times  in 
foreign  trade  by  both  Germany  and  the  United  States  does 
not  mean  that  that  nation  is  becoming  either  impoverished 
or  decadent.  France,  keenly  appraising  the  situation,  finds 
it  undesirable  to  make  the  strenuous  efforts  to  promote 
foreign  commerce  that  have  placed  Germany  in  the  front 
rank  in  the  trade  of  the  world.  France  enjoys  the  position 
of  being  more  nearly  self-sufficient  than  any  other  European 
nation;  consequently,  foreign  trade  is  of  secondary  and 
not  primary  importance  to  her.  With  an  area  considerably 
smaller  than  Texas,  France  produces  nearly  half  as  much 
wheat  each  year  as  the  whole  United  States — enough  to 
just  about  supply  her  needs.  The  land  is  held  in  small  in- 
dividual holdings,  and  is  cultivated  with  care  by  the  owner 
and  his  family.  The  average  farm  comprises  twenty 
acres.    There  is  no  firmly  intrenched  agrarian  class,  con- 

294 


FOREIGN  TRADE  OF  OTHER  NATIONS  295 

trolling  a  large  part  of  the  agricultural  area,  as  in  Germany, 
and  so  agriculture  is  encouraged.  Sugar-beets,  potatoes, 
vegetables,  olives,  nuts,  and  fruits  are  other  food  products, 
in  addition  to  the  cereals,  produced  on  the  well-tilled  acres 
of  France.  Sheep  and  cattle  are  also  raised  in  large  enough 
quantities  to  satisfy  the  home  market. 

France  ranks  fourth  in  manufacturing  as  she  does  in 
commerce.  But  in  the  manufactures  which  predominate 
in  the  foreign  trade  of  the  era — those  resulting  from  the 
large-scale  production  of  enormous  quantities  of  standard- 
ized goods — France  is  not  a  leader. 

Coal  and  iron,  which  are  the  basis  of  manufacture  de- 
pendent upon  high-power  machinery,  are  found  in  northern 
and  central  France,  but  not  in  sufficient  quantity  to  pre- 
vent the  importation  of  both  of  these  basic  manufacturing 
commodities.  With  the  reacquisition  of  Alsace-Lorraine, 
the  coal  and  iron  supply  of  France  was  greatly  augmented. 
A  great  impetus  was  thus  given  to  the  manufacturer  of 
iron  and  steel  products.  The  two  leading  manufacturing 
industries  are  wine-making  and  silk  manufacture,  both  of 
which  depend  upon  home  agriculture  for  their  raw  product. 
Excellent  clay  for  the  making  of  porcelain  is  available,  and 
French  porcelains  form  an  important  export  item.  French 
silks  and  velvets  are  the  best  in  the  world.  French  laces 
and  embroideries,  ribbons  and  veilings,  gowns  and  milli- 
nery, lingerie  and  trimmings  find  a  market  in  the  fashion 
centres  of  the  world.  France  not  only  manufactures  the 
most  beautiful  materials  for  wearing  apparel,  but  her  artis- 
tic designers  and  dressmakers  make  these  up  into  garments 
that  sell  at  unbelievably  high  prices  to  the  fashionable  world 
that  is  captivated  by  their  style  and  originality.  Her 
skilled  workers  thus  use  the  taste  and  artistic  touch  for 
which  they  have  long  been  famous  to  create  a  commerce 
that  is  highly  profitable  and  that  is  peculiarly  their  own. 
This  is  true  in  regard  to  works  of  art,  porcelain,  bric-a-brac, 
perfumery,  and  fine  wines,  as  well  as  to  wearing  apparel. 


296    FOREIGN  TRADE  OF   UNITED   STATES 

France  thus  supplies  the  luxuries  rather  than  the  utilities 
of  commerce,  and  stands  somewhat  aloof  from  the  indus- 
trial and  commercial  tendencies  of  the  age. 

The  United  States  imports  from  France  all  of  the  typical 
manufactures  just  enumerated.  Our  exports  to  her  con- 
sist of  raw  cotton,  copper,  petroleum,  machinery,  tools, 
and  hardware.  While  our  sales  exceed  our  purchases  by 
about  $20,000,000  annually,  this  is  much  more  than  ofifset 
by  the  expenditures  in  France  of  American  tourists,  art 
students,  and  others  living  there  and  dramng  their  income 
from  the  United  States.  It  is  estimated  that  in  normal 
times  over  $100,000,000,  in  the  form  of  letters  of  credit, 
checks,  and  other  negotiable  paper,  passes  from  the  United 
States  each  year  in  payment  of  these  expenses.  Again 
we  see  how  France,  by  catering  to  the  artistic  side  of  hu- 
manity, adds  to  her  wealth  and  prosperity.  By  fostering 
art  and  the  refinements  of  Hfe  she  has  made  Paris  the 
mecca  of  the  lover  of  the  beautiful;  since  Mahomet  comes 
to  the  mountain,  the  mountain  does  not  need  to  go  to 
Mahomet. 

Italy. — Our  imports  from  Italy  amount  to  about  $56,- 
000,000  annually,  our  exports  to  $75,000,000.  Raw  cotton 
constitutes  about  one-half  of  our  ItaKan  exports.  Grain, 
tobacco,  lumber,  naval  stores,  mineral  and  vegetable  oils, 
copper,  and  machinery  are  other  articles  we  send  to  Italy. 
Italy  has  sent  us  silks,  tropical  fruits,  olives  and  olive-oil, 
perfumery  and  art  works.  Our  exports  to  Italy  were 
greatly  augmented  by  the  World  War,  amounting  in  191 5 
to  $185,000,000,  which  made  that  nation  our  fifth  best  cus- 
tomer. It  is  thought  that  our  permanent  trade  with  that 
country  will  be  of  greater  volume  in  the  future,  because 
trade  connections  have  been  estabUshed  and  American  goods 
introduced  to  merchants  and  consmners  who  will  demand 
them  hereafter.  Italy  requires  more  of  our  raw  materials 
than  of  our  manufactures,  for,  though  all  of  her  coal  and 
most  of  her  iron  have  been  imported  (mostly  from  Eng- 


FOREIGN  TRADE  OF  OTHER  NATIONS     297 

land),  she  has  developed  a  manufacturing  industry  of  im- 
portance. As  this  industry  expands,  it  will  create  a  greater 
demand  for  machinery  and  equipment  and  raw  materials 
from  the  United  States.  Italy,  like  France,  acquired  by 
the  terms  of  the  peace  settlement  territory  containing 
valuable  coal  and  iron  deposits. 

The  Netherlands. — The  Netherlands  usually  rank  as 
our  fifth  best  customer,  which  shows  that  this  tiny  nation 
has  maintained  in  a  high,  degree  the  commercial  importance 
it  won  in  the  seventeenth  century.  Without  coal,  iron,  or 
water-power,  large-scale  manufacturing  has  been  handi- 
capped; with  a  population  of  466  persons  to  the  square 
mile,  commerce  has  been  necessary.  Therefore,  it  has  de- 
veloped a  transit  trade  of  immense  proportions,  the  value 
of  the  merchandise  bought  and  re-exported  approximating 
$1,000,000,000  each  year.  Its  position  combined  with  its 
splendid  waterways  affording  cheap  transportation  facili- 
ties are  factors  of  the  greatest  importance  in  the  vast  trade 
handled.  Though  it  is  a  commercial  rather  than  an  indus- 
trial nation,  its  agricultural  and  manufacturing  output  is 
large.  The  exports  are  bulbs,  nursery  stock,  seeds,  dairy 
products,  and  linen  and  cotton  manufactures.  From  the 
colonies  in  the  East  and  West  Indies  and  in  South  America, 
the  Netherlands  obtain  great  quantities  of  valuable  com- 
modities, which  are  sent  there  to  be  marketed.  These 
re-exports  include  spices,  coffee,  chocolate,  and  other 
tropical  products.  Our  imports  from  the  Netherlands 
amount  to  about  $35,000,000  annually,  while  our  exports 
are  from  three  to  four  times  as  large  as  the  imports.  They 
include  raw  cotton,  cereals,  iron  and  steel  manufactures, 
and  petroleum,  which  are  our  staple  articles  finding  a 
ready  market  in  every  European  country. 

Belgium. — Before  she  was  devastated  by  the  hosts  of  war, 
Belgium  held  a  high  rank  as  an  industrial  and  commercial 
nation.  In  the  per  capita  output  of  her  great  manufactur- 
ing plants  she  ranked  second  only  to  the  United  Kingdom; 


298    FOREIGN  TRADE  OF  UNITED   STATES 

in  the  value  and  volume  of  her  commerce  she  stood  sixth 
among  the  nations  of  the  world.  Added  to  the  imports  for 
consumption  and  the  domestic  exports  was  a  tremendous 
transit  trade,  approximating  $1,000,000,000  each  year. 
This  small  country  has  the  extensive  coal  and  iron  deposits 
essential  to  large-scale  manufacturing;  her  capitalists  are 
progressive,  her  workmen  skilled  and  industrious,  and  her 
merchants  clear-sighted  and  aggressive.  These  factors 
all  combined  to  make  Belgium  successful  in  the  markets  of 
the  w^orld,  thus  insuring  her  prosperity  at  home.  Her  man- 
ufactures that  have  entered  international  trade  are  iron 
and  steel  products,  including  machinery,  hardware,  struc- 
tural iron  and  steel;  woollen  and  cotton  textiles,  yarns,  car- 
pets, lace,  and  glass  manufactures. 

In  the  low  and  fertile  plains  of  the  north  and  west  the 
intensively  cultivated  farms  produce  wheat,  rye,  sugar- 
beets,  beans,  potatoes,  flax,  and  hops.  But  over  40  per 
cent  of  the  food  comes  from  other  countries.  From  the 
United  States  Belgium  has  imported  grain,  meat,  and  manu- 
factures. To  us  she  has  exported  textiles,  carpets  and  rugs, 
lace,  and  other  manufactures.  We  have  also  purchased 
most  of  our  diamonds  from  this  Httle  hive  of  industry,  as 
her  diamond  merchants  have  long  practically  controlled 
that  trade,  and  her  diamond-cutters  are  the  most  skilled 
in  the  world.  The  skill,  energy,  industry,  thrift,  and  cour- 
age of  this  nation  alike  insure  her  future  in  the  markets  of 
the  world. 

Spain  and  Portugal. — The  nations  of  the  Iberian  Penin- 
sula are  unlike  the  other  European  countries  considered, 
in  that  manufacturing  is  Httle  developed,  despite  the  fact 
that  there  is  an  abundance  of  coal  and  iron  available.  Their 
commerce  is  likewise  small,  though  there  are  signs  of  a 
general  industrial  development  for  the  future.  The  prod- 
ucts Spain  sends  us  are  cork,  wines,  raisins,  nuts,  and 
fruits.  Our  products  finding  a  market  are  raw  cotton  for 
the  factories  of  Barcelona,  cereals,  and  manufactures. 


FOREIGN  TRADE  OF  OTHER  NATIONS  299 

Russia.— This  nation  with  its  heterogeneous  population 
and  vast  area  stands  next  to  Spain  as  a  buyer  of  our  goods, 
her  direct  purchases  amounting  ordinarily  to  about  $30,- 
000,000.  Other  of  our  products  reach  Russia  through 
intermediaries,  but  it  is  impossible  to  estimate  the  amount 
of  such  re-export  trade.  Russia  has  rich  undeveloped  re- 
sources of  incalculable  value;  she  possesses  all  the  minerals 
and  basic  materials  necessary  for  the  building  up  of  an  im- 
mense manufacturing  industry,  but  as  yet  these  lie  dormant. 
Her  trade  has  been  dominated  by  Germany  in  the  past, 
with  the  United  Kingdom  and  France  in  active  competition. 
She  has  imported  many  commodities  from  other  countries 
that  we  may  well  supply  in  increasing  quantities  in  the 
future.  Some  of  these  are  pig-iron  manufactures,  metal- 
working  machinery,  dynamos  and  electric  motors,  electrical 
appliances,  motor  cars  and  trucks,  musical  instruments, 
paper  manufactures  and  chemicals.  The  commodities 
we  have  sold  to  her  have  included  raw  cotton,  agricultural 
machinery,  sewing-machines,  and  paper  manufactures. 
Russia  exports  many  of  the  products  that  we  seek  in  foreign 
markets,  such  as  flax,  hemp,  hides,  skins,  and  bristles. 
Other  of  her  exports  are  wheat,  petroleum,  timber,  and  dairy 
products. 

Other  European  Countries. — We  have  considered  in 
brief  our  trade  with  the  principal  European  nations  having 
extensive  commercial  relations  with  us.  Of  those  remain- 
ing, the  Scandina\aan  peninsula  may  be  briefly  considered. 
Norway  has  large  shipping  interests  and  a  profitable  carry- 
ing trade.  The  trade  of  the  peninsula  is  mostly  with  the 
United  Kingdom  and  Germany.  Both  countries  export 
wood-pulp,  dairy  products,  and  meats  and  fish.  Denmark 
is  similar  to  these  countries  in  many  respects.  Dairy  prod- 
ucts are  exported  in  astonishing  quantities,  when  the  size 
of  the  country  is  considered.  Our  exports  to  these  coun- 
tries are  grain  and  grain  products  and  manufactures. 

The  trade  of  Austria-Hungary  has  been  mostly  with 


300    FOREIGN  TRADE   OF   UNITED   STATES 

Gemiany  and  the  Balkan  states.  Austrian  manufactures 
are  important,  while  Hungary  is  almost  entirely  given  over 
to  agriculture.  Grain,  meat,  dairy  products,  and  wine 
are  exported  to  other  European  countries,  while  Bohemian 
glass,  porcelains,  and  metal  wares  come  to  the  United 
States.  Our  exports  are  raw  cotton,  machinery,  hardware, 
and  tools. 

Canada. — Our  trade  with  both  North  and  South  America 
is  developing  rapidly,  and  is  looked  upon  as  holding  won- 
derful possibilities  for  the  future.  Of  all  the  countries  of 
these  two  great  continents,  Canada  has  by  far  the  largest 
foreign  trade.  Next  to  the  United  Kingdom,  our  northern 
neighbor  has  been  our  best  customer,  buying  about  as  ex- 
tensively from  us  as  has  Germany.  There  are  several  dis- 
tinct advantages  in  our  trade  with  Canada.  In  the  first 
place,  proximity  simplifies  the  trade  between  the  two  coun- 
tries; it  is  not  at  all  difficult  for  our  exporters  to  ascertain 
the  needs  of  the  Canadian  market  and  to  cater  to  those 
needs;  on  the  other  hand,  we  can  obtain  from  Canada 
without  trouble  or  delay  those  commodities  of  which  that 
country  produces  a  surplus  and  of  which  we  stand  in  need. 
Besides  having  the  advantage  of  proximity,  there  is  an- 
other that  arises  out  of  the  difference  in  the  industrial  con- 
ditions of  the  two  countries.  In  the  United  States  manu- 
facturing is  a  highly  developed  industry;  in  Canada  it  is 
only  in  its  infancy.  Consequently,  Canada  imports  the 
very  articles  that  we  are  seeking  a  market  for.  These  in- 
clude iron  and  steel  products,  such  as  machinery,  tools,  hard- 
ware, and  structural  iron  and  steel;  textiles  of  cotton, 
wool,  and  silk;  wearing  apparel,  such  as  clothing,  hats, 
gloves,  and  knit  goods;  and  house  furnishings.  The 
coarser  textiles,  much  farm  machinery,  leather  and  w^ooden 
manufactures,  are  manufactured  there,  but  it  will  be  some 
years  before  Canada  ceases  to  be  an  importer  of  great 
quantities  of  manufactured  articles.  Her  exports  are  food 
products,  such  as  grain,  cattle,  fish,  and  dairy  products; 


FOREIGN  TRADE  OF  OTHER  NATIONS    301 

raw  materials,  notably  timber,  wood-pulp,  copper,  nickel, 
asbestos,  silver,  and  gold;  and  some  manufactured  articles. 
We  take  large  quantities  of  timber,  wood-pulp,  and  metals 
from  Canada,  and  supply  her  with  anthracite  coal,  cotton, 
and  with  the  products  of  our  semitropical  States,  including 
oranges,  lemons,  and  walnuts.  In  the  immense  quantity 
of  manufactured  articles  which  we  send  to  Canada  are 
included  all  the  manufactures  mentioned  among  her  im- 
ports. We  are  Canada's  best  customer,  and  she  is  one  of 
our  best  markets.  With  reciprocity  estabhshed  between 
the  two  countries,  the  trade  would  increase  to  their  mutual 
advantage. 

Mexico. — A  country  possessing  both  temperate  and 
tropical  regions  of  great  productive  possibilities,  the  richest 
silver-mines  of  any  country  in  the  world,  with  vast 
wealth  in  other  minerals,  wonderful  forests  of  rare  woods 
such  as  mahogany  and  rosewood,  and  broad  plains  pe- 
culiarly well  adapted  to  stock-raising,  holds  great  promise 
of  future  development,  awaiting  only  the  time  when  the 
people  may  become  united  in  the  establishment  of  a  govern- 
ment founded  on  principles  that  mil  insure  its  permanency 
and  stability.  Mexico's  exports  have  greatly  exceeded 
her  imports  in  value,  amounting  in  19 13  to  nearly  $130,- 
000,000.  The  amount  of  foreign  capital  invested  there  is 
very  large,  and  in  normal  times  the  interest  on  this  is  so 
great  as  to  draw  freely  on  the  products  of  the  country  in 
payment.  Mexico  needs  more  railways  and  more  capital 
to  develop  its  immense  resources,  but  these  cannot  be  sup- 
pHed  until  internal  dissensions  are  finally  and  permanently 
settled.  Very  little  machine  manufacturing  is  carried  on; 
hence,  the  market  for  such  goods  has  possibilities.  The 
purchasing  power  of  most  of  the  population  is  low,  and 
can  be  increased  only  by  the  development  of  the  country. 
At  present,  the  greater  part  of  the  trade  of  the  country  is 
with  the  United  States,  which  affords  a  market  for  nearly 
all  of  the  exports  and  supplies  over  half  of  the  imports. 


302    FOREIGN  TRADE  OF  UNITED   STATES 

The  exports  are  silver,  gold,  copper,  lead,  henequin  fibres, 
hides,  petroleum,  cattle,  tropical  woods,  coffee,  vanilla 
beans,  and  tobacco.  The  imports  are  machinery,  iron 
and  steel,  coal,  cotton  and  woollen  textiles,  and  some  raw 
cotton.  Mexico  uses  large  quantities  of  cotton  manu- 
factures, but  has  purchased  most  of  these  from  the  United 
Kingdom,  because,  it  is  claimed,  the  English  manufac- 
turers take  special  pains  to  cater  to  the  taste  of  their  Mex- 
ican customers,  supplying  the  gaudy  colors  and  fantastic 
patterns  desired. 

Central  America. — Included  in  Central  America  are  the 
repubHcs  of  Guatemala,  Costa  Rica,  Nicaragua,  Honduras, 
Salvador,  and  Panama,  and  the  British  possession  known  as 
British  Honduras.  The  inhabited  portion  consists  for 
the  most  part  of  a  narrow  strip  of  plain  bordering  the 
Pacific.  All  of  these  countries  are  rich  in  such  tropical 
products  as  coffee,  rubber,  tobacco,  indigo,  sugar,  rice, 
bananas,  cocoa,  mahogany  and  other  cabinet  woods. 
Many  large  banana  plantations  have  been  developed  by 
American  capital,  and  regular  steamship  service  is  afforded 
to  Atlantic  and  Gulf  ports,  as  well  as  to  Pacific  ports.  The 
Panama  Canal  is  being  used  to  some  extent  for  shipments 
from  the  west  coast.  As  these  countries  develop  they  are 
bound  to  afford  better  and  better  markets  for  American 
manufactures.  The  greater  papi.  of  their  foreign  trade  is 
now  with  the  United  States. 

The  West  Indies.— Cuba  and  Porto  Rico  are  the  most 
important  of  these  islands,  and  both  trade  extensively  with 
the  United  States.  Cuba  produces  more  cane-sugar  than 
any  other  country  in  the  world,  and  most  of  it  comes  to 
the  United  States.  Tqbacco,  tropical  fruits,  and  iron  ore 
are  also  exported.  Cuba  impQrts  iiieats,  cereals,  and  manu- 
factures. 

Porto  Rico  belongs  to  the  United  States,  and  most  of  its 
trade  is  with  the  United  States.  It  resembles  Cuba  in 
both  imports  and  exports. 


FOREIGN  TRADE  OF  OTHER  NATIONS    303 

South  America. — More  interest  is  being  displayed  in 
our  trade  with  the  South  American  republics  than  with 
any  other  countries  in  the  world.  This  despite  the  fact 
that  only  about  12  per  cent  of  our  imports  come  from  those 
republics  and  that  less  than  6  per  cent  of  our  exports  find 
a  market  there.  But  our  trade  with  these  countries  is 
peculiarly  important,  because  they  supply  us  with  a  large 
part  of  those  tropical  products  that  we  must  import,  and 
because  they  afford  a  market  for  those  manufactures  that 
we  are  desirous  of  placing  in  increasing  quantity  in  foreign 
countries.  It  is  said  that  north  and  south  trade,  rather 
tlian  east  and  west  trade,  is  bound  to  prevail  in  the  future, 
because  countries  differing  greatly  in  latitude  are  naturally 
complementary  in  products — such  trade  is,  therefore,  based 
on  natural  laws.  The  United  States  Government  and  the 
Pan-American  Union  are  constantly  issuing  valuable  book- 
lets and  other  literature  setting  forth  in  detail  the  resources, 
industries,  and  trade  possibilities  of  the  different  countries 
of  South  America.  Consequently  only  a  brief  review  of  our 
trade  with  the  more  important  republics  will  be  given  here. 

Argentina  has  the  largest  foreign  trade  of  any  of  the 
republics.  Its  products  include  those  of  both  temperate 
and  tropical  regions,  though  its  exports  are  mostly  from 
the  temperate  plains.  It  is  first  of  all  countries  in  the  ex- 
portation of  frozen  meats  and  second  in  exports  of  wool. 
It  also  produces  a  surplus  of  wheat,  corn,  hides  and  skins, 
and  sugar.  The  United  Kingdom  has  taken  about  two- 
thirds  of  Argentina's  exports,  and  has  supplied  nearly  one- 
third  of  the  imports.  Germany,  the  United  States,  and 
France  have  also  developed  large  trade  with  Argentina. 
Our  trade  has  not  been  reciprocal,  our  exports  greatly  ex- 
ceeding our  imports  in  value.  This  is  due  to  the  nature 
of  Argentina's  exports,  which,  with  the  exception  of  hides 
and  skins  and  sugar,  are  similar  to  our  own.  Buenos  Aires 
is  the  chief  port.  The  imports  are  machinery  and  other 
manufactures. 


304    FOREIGN  TRADE  OF  UNITED   STATES 

Brazil  is  the  largest  country  of  South  America,  but  it  has 
not  developed  as  rapidly  as  Argentina.  One-third  of 
Brazil's  exports  consist  of  coffee;  another  third  of  rubber; 
tobacco,  cotton,  and  sugar  are  also  exported.  The  United 
States  affords  by  far  the  best  market  for  Brazilian  products, 
but  our  exports  to  that  country  have  been  exceeded  by  the 
United  Kingdom  and  Germany.  Wheat,  flour,  machinery, 
textiles,  petroleum,  and  a  wide  variety  of  manufactured 
articles  are  imported.  Rio  de  Janeiro  is  the  great  seaport, 
though  coffee  is  exported  from  Santos  and  rubber  from  Para. 

Chile  owes  a  large  share  of  its  commercial  importance  to 
its  seemingly  inexhaustible  supply  of  nitrate  of  soda,  used 
as  a  fertilizer.  Most  of  the  nitrates  are  shipped  from 
Iquique,  though  Valparaiso  is  the  most  important  port. 
Copper,  hides  and  skins,  wool,  and  wheat  are  also  exported. 
The  imports  are  machinery,  tools,  structural  iron  and  steel, 
textiles,  and  other  manufactures — all  articles  that  might 
be  supplied  in  greater  quantity  by  the  United  States. 

Venezuela  exports  coffee,  cocoa,  hides  and  skins,  and 
cabinet  woods,  which  find  an  excellent  market  in  the 
United  States.  We  find  in  her  imports  the  same  list  re- 
peated as  in  the  case  of  the  other  undeveloped  countries — 
machinery,  tools,  textiles,  and  other  manufactures. 

Colombia's  exports  resemble  those  of  Venezuela.  Pan- 
ama hats  are  also  manufactured  for  foreign  markets  in 
great  quantities.  Gold  is  mined  in  great  quantities  and 
is  sent  to  the  United  States  and  England.  There  is  a 
good  market  for  mining  machinery,  for  silver,  lead,  and 
copper  are  also  produced.  Hides,  bananas,  coffee,  vege- 
table ivory,  and  rubber  are  exported  to  the  United  States, 
and  machinery,  drugs,  and  medicines,  textiles,  various 
metals,  and  food  products  are  imported.  Over  one-half 
of  the  entire  trade  is  with  the  United  States. 

Peru  exports  silver,  copper,  sugar,  coffee,  wool,  hides, 
and  cocoa.  Wheat,  petroleum,  and  manufactures  are  im- 
ports from  the  United  States. 


FOREIGN  TRADE  OF  OTHER  NATIONS    305 

Australia. — This  great  continent  with  an  area  nearly 
as  large  as  that  of  continental  United  States  and  a  popula- 
tion of  less  than  5,000^000,  is  in  the  first  stages  of  what 
promises  to  be  a  rapid  development.  Its  isolation  has  held 
it  back,  for  it  has  been  out  of  the  stream  of  unmigration 
that  usually  pours  into  new  countries  offering  opportunities 
for  the  laborer  and  small  farmer.  With  improved  ocean 
transportation,  which  it  is  now  eagerly  seeking,  this  richly 
endowed  country  may  be  expected  to  forge  ahead  at  a 
wonderful  rate.  Its  foreign  trade  at  present  aggregates 
about  $750,000,000,  with  imports  in  excess  of  exports, 
due  to  the  importation  of  machinery  and  equipment  for 
development  projects.  Australia  leads  the  world  in  the 
production  of  wool,  which  is  its  leading  export.  Other 
commodities  produced  there  which  we  ffnd  it  profitable  to 
import  are  hides  and  skins,  tin  ingots,  pearl-shell,  and  gold 
and  silver.  Meats  and  dairy  products,  cocoanuts,  and  co- 
pra, which  is  the  dried  meat  of  the  cocoanut  >delding  a 
vegetable  oil,  are  other  exports.  Only  about  3  per  cent  of 
Australia's  exports  have  come  to  the  United  States,  the 
United  Kingdom  and  Gennany  being  her  best  markets. 
On  the  other  hand,  Austraha  has  been  a  good  customer  for 
our  wares,  fuUy  14  per  cent  of  her  imports  ha\'ing  been 
purchased  here,  at  a  total  cost  of  between  $40,000,000  and 
$50,000,000  annually.  The  nature  of  the  goods  purchased 
by  Australia  adds  materially  to  the  value  of  the  trade  with 
that  country,  as  they  consist  almost  entirely  of  the  manu- 
factures which  we,  in  common  with  other  manufacturing 
nations,  are  seeking  to  market.  The  leading  articles  ex- 
ported to  Australia  are  machinery,  electrical  appliances, 
surgical  instruments,  drugs,  chemicals  and  medicines, 
cameras,  magic  lanterns,  musical  instruments,  motor 
vehicles,  rubber  and  leather  manufactures,  paints  and 
varnishes,  glassware,  chinaware,  clocks,  jewelry-,  clothing, 
textiles,  and  firearms. 

A  hindrance  to  the  development  of  reciprocal  trade  rela- 


3o6    FOREIGN  TRADE  OF  UNITED   STATES 

tions  with  Australia  has  been  that  the  ships  leaving  our 
Atlantic  ports  for  that  continent  have  not  returned  directly 
to  the  United  States,  but  to  Europe  and  then  here.  Con- 
sequently, we  have  not  purchased  as  large  a  proportion  of 
Australian  products  as  we  might  if  they  were  brought  here 
directly.  With  direct  lines  plying  to  and  from  AustraHa 
and  the  Atlantic  ports,  by  way  of  the  Panama  Canal,  a 
permanent  trade  advantageous  to  both  countries  could  be 
developed.  The  direct  steamship  service  from  the  Pacific 
coast  to  Sydney  has  greatly  stimulated  our  trade  with 
Australia. 

New  Zealand. — This  country,  with  a  population  of  only 
a  million,  has  a  foreign  trade  of  $96  per  capita,  about  equally 
divided  between  imports  and  exports.  The  products  are 
similar  to  those  of  Australia,  and  her  imports  likewise  con- 
sist largely  of  manufactures.  Her  imports  from  the 
United  States  amount  to  about  $9,000,000  annually.  As 
in  the  case  of  other  new  countries,  this  trade  may  be  ex- 
pected to  increase  greatly  as  the  country  develops. 

Philippine  Islands. — There  are  in  all  about  2,000  islands 
in  the  PhiHppine  group.  They  are  mostly  undeveloped 
tropical  forest  regions,  with  promise  for  future  develop- 
ment. At  present  the  principal  exports  are  manila  hemp, 
copra  and  cocoanuts,  tobacco,  sugar,  and  coffee.  We  take 
about  37  per  cent  of  the  exports  and  supply  45  per  cent  of 
the  imports  of  the  islands.  The  latter  consist  of  manu- 
factures in  a  wide  variety.  Our  exports  to  the  Philippines 
in  19 1 6  were  nearly  as  valuable  as  those  we  sent  to  Japan; 
they  were  valued  at  about  $50,000,000,  or  double  those  of 
the  previous  calendar  year.  Our  trade  with  the  islands 
has  increased  tenfold  since  1900. 

Hawaiian  Islands. — This  small  island  group,  with  an 
area  of  only  6,449  miles,  produces  on  its  great  plantations 
half  a  billion  tons  of  cane-sugar  each  year,  practically  all 
of  which  is  brought  to  the  United  States,  duty  free,  and 
refined  here.     Rice,  coffee,  pineapples,  and  bananas  are 


FOREIGN  TRADE  OF  OTHER  NATIONS  307 

other  products  we  obtain  from  Hawaii.  In  return  we  send 
lumber  and  manufactured  articles  of  every  description. 

Japan. — The  rapid  development  of  this  country  has  been 
one  of  the  marvels  of  the  last  fifty  years.  Without  iron, 
coal,  wool,  leather,  rubber,  or  cotton  in  any  considerable 
quantity,  Japan  has  succeeded  in  developing  a  great 
manufacturing  industry  and  an  extensive  commerce.  We 
obtain  from  Japan  tea,  camphor,  silk,  porcelain,  lacquer- 
ware,  earthenware,  and  various  ornamental  manufactures 
of  brass  and  other  metals.  Japan  takes  from  us  considera- 
ble quantities  of  raw  cotton,  electric  machinery  and  other 
equipment  for  her  factories,  tools,  manufactured  articles 
of  various  kinds,  petroleum,  and  flour.  We  are  Japan's 
best  customer,  but  we  supply  her  with  only  about  one- 
sixth  of  her  imports.  Japan  has  developed  in  recent  years 
a  great  ship-building  industry  and  has  built  up  a  merchant 
marine  as  well  as  a  na\y  of  importance.  Over  half  of  the 
foreign  trade  of  the  country  passes  through  the  port  of 
Yokohama,  which  is  on  the  direct  route  of  all  steamship- 
lines  pl>ing  from  the  west  coast  of  North  America  to  the 
Orient.  The  total  foreign  trade  of  Japan  was  in  19 13  about 
$678,000,000.  In  1918  the  exports  alone  exceeded  $881,- 
000,000.  Of  these,  30  per  cent  went  to  the  United  States 
and  only  6  per  cent  to  Europe. 

China. — China,  with  its  enormous  population  of  low- 
purchasing  power,  its  meagre  transportation  facilities,  its 
distinctive  ci\ilization,  and  its  great  area  stretching  from 
the  cold  interior  plateaus  to  the  southern  subtropical 
coastal  regions,  presents  problems  to  the  Western  commer- 
cial world  that  only  time  can  solve.  The  country  is  gradu- 
ally assimilating  Western  civilization  and  introducing  mod- 
ern customs  that  may  result  in  a  complete  industrial  revolu- 
tion there.  It  has  vast  agricultural  and  mineral  resources, 
possesses  the  coal  and  iron  essential  to  modern  industry, 
and  its  people  have  proved  their  abihty  to  imitate  the 
methods  of  the  newer  nations.     Manufacturing  in  a  modern 


3o8    FOREIGN  TRADE  OF  UNITED  STATES 

sense  has  gained  a  foothold  in  China  recently,  and  it  now 
seems  probable  that  the  people  will  gradually  abandon  their 
hard  attempt  to  wrest  a  living  from  the  soil  and  turn  to 
manufacturing  for  other  nations  as  a  means  of  livelihood. 
If  this  should  happen,  the  result  of  such  competition  from 
the  low-paid  labor  of  the  Orient  might  prove  disastrous  to 
other  nations  maintaining  a  higher  standard  of  living.  At 
present  the  dense  population  is  mostly  engaged  in  agricul- 
ture, and  silk,  tea,  beans  and  bean-cake,  raw  cotton,  hides 
and  skins  (mostly  of  goats),  straw  braids  and  matting  are 
exported,  along  with  unique  carvings  and  other  distinctive 
manufactures.  The  imports  are  cotton  goods,  rice,  sugar, 
petroleum,  vegetable  oils,  machinery,  and  manufactured 
articles  of  different  kinds.  Japan  is  rapidly  extending  her 
trade  and  her  influence  in  China,  but  as  the  country  de- 
velops it  will  afford  an  excellent  market  for  structural  iron 
and  steel,  electrical  machinery  and  appliances,  and  other 
development  equipment.  Blast-furnaces,  cotton-mills,  and 
silk-manufacturing  plants  have  recently  been  established 
in  China  with  the  aid  of  American  and  British  capital. 

BIBLIOGRAPHY 

American  Industrial  Commission  to  France.  Report  to  the 
American  Manufacturers^  Export  Association,  September,  Octo- 
ber, 1916.     New  York,  191 7. 

Chambers,  F.  A.     Holland  and  Its  Trade.     New  York,  1902. 

CoLQUHOUN,  Archibald  R.  China  in  Transformation.  New 
York  and  London,  191 2. 

Commercial  Relations  Between  the  United  States  and  Japan  ;  Ad- 
dresses by  the  Commissioners  Representing  the  Chambers  of  Com- 
m^erce  of  Japan.     Philadelphia,  19 10. 

Ensor,  Robert  C.  K.     Belgium.     New  York,  191 5. 

France  in  South  America.  Literary  Digest,  vol.  54,  pp.  1052-3. 
April  14,  1 91 7. 

George,  W.  L.     France  in  the  Twentieth  Century.     New  York,  1909. 

Graham,  James,  and  Oliver,  George  A.  S.  French  Commercial 
Practice  Connected  with  the  Export  and  Import  Trade.  New 
York  and  London,  1904-7. 


FOREIGN  TRADE  OF  OTHER  NATIONS  309 

Griffis,  William  E.     Belgium;    the  Land  of  Art;    Its  History, 

Legends,  Industry,  and  Modern  Expansion.     Boston,  191 2. 
Japan.     Department  of  Finance.     Annual  Return  of  the  Foreign 

Trade  of  the  Empire.     Tokyo.     Annual  since  1882. 
Jernigan,  Thomas  R.     China  in  Law  and  Commerce.    New  York, 

1905. 
Morse,  Hosea  Ballou.     The  Trade  and  Administration  of  China. 

New  York,  19 13. 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.    Commercial 

Organizations  in  France.     191 5. 
U.  S.  Bureau  of  Manufactures.     Trade  with  China.    American 

Methods  and  Trade  Opportunities  in  the  Markets  of  the  Orient. 

(Special  agent  series  no.  7.)     1906. 
Whelpley.     The  Trade  of  the  World.    New  York,  191 2. 

Latin  America 

Cooper,  Clayton  S.     Understanding  South  America.    New  York, 

1918. 
Hale,  A.     The  South  Americans.    New  York,  1907. 
Kahler,    H.    M.     Current   Misconceptions   of  Trade   with   Latin 

America.    Philadelphia,  1911. 
Koebel,  W.  H.    South  America :   An  Industrial  and  Commercial 

Field.    London. 
Mechanics  and  Metals  National  Bank,  New  York.     Export 

Trade  to  Central  America.     New  York,  191 7. 
Porter,  Robert  P.     The  Ten  Republics.     Chicago,  1911. 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.    Invest- 
ments in  Latin  America  and  British  West  Indies.     (Special 

agent  series  no.  169.)     1918. 
Verrill,    H.    H.    Getting    Together    with    Latin    America.    New 

York,  1918. 
Wells,  W.  C.    Soms  Considerations  Respecting  Latin  American 

Trade.    Pan-American  Union.    Washington,  19x5. 


QUESTIONS  THAT  MAY  BE  ANSWERED 
FROM  THIS  TEXT 

CHAPTER  I 

1.  What  is  meant  by  the  statement,  "Commerce  is  the  hand- 
maiden of  civiHzation  "  ? 

2.  What  are  some  of  the  methods  used  to  control  and  direct 
commerce  ? 

3.  What  great  manufacturing  nations  are  largely  dependent 
upon  imported  raw  materials? 

4.  What  has  been  the  effect  of  cheap  transportation  upon  the 
character  of  the  world's  commerce? 

5.  What  has  steam  done  for  the  inland  farmers  of  the  United 
States  ? 

6.  What  are  some  of  the  causes  of  the  stupendous  expansion 
of  international  trade  since  the  opening  of  the  twentieth  century? 

7.  What  four  countries  led  in  foreign  trade  in  1913?     Why  is 
that  date  designated  instead  of  a  later  one? 

8.  To  what  extent  is  it  true  that  a  large  foreign  trade  is  an  in- 
dication of  national  prosperity? 

9.  Discuss  the  statement:  "It  may  easily  be  shown  that  the 
gain  to  a  country  is  in  its  imports." 

10.  Who  was  Adam  Smith?     What  does  he  say  of  the  value 
of  foreign  trade  to  a  nation? 

11.  How  is  a  territorial  division  of  labor  made  possible  by  for- 
eign trade? 

12.  What  is  meant  by  the  self-sufficiency  of  France  in  regard 
to  foreign  trade  ? 

CHAPTER  II 

1.  What  were  the  principal  products  of  the  South  during  the 
colonial  period  and  for  what  class  of  products  were  they  traded  ? 

2.  What  Atlantic  port  developed  an  early  commerce  with  Eng- 
land and  the  West  Indies? 

3.  What  part  did  New  England  take  in  colonial  commerce? 

4.  To  what  influence  is  the  revival  of  commerce  after  the  Revo- 
lution attributed? 

3" 


312  QUESTIONS 

5.  What  was  the  effect  of  the  development  of  the  Middle  West 
on  our  foreign  trade  between  1850  and  i860? 

6.  What  was  the  outstanding  economic  characteristic  of  the 
development  that  followed  the  Civil  War? 

7.  What  two  striking  changes  in  our  foreign  trade  took  place 
between  1876  and  1900? 

8.  Why  does  the  change  to  a  favorable  balance  of  trade  mark  a 
new  era? 

9.  What  class  of  products  showed  the  most  striking  increase  in 
our  export  trade  in  the  first  fourteen  years  of  the  twentieth  century  ? 

10.  What  is  meant  by  looking  upon  foreign  markets  as  pri- 
mary markets? 

11.  What  was  the  most  significant  change  in  our  import  trade 
in  the  period  of  1 900-1 914? 

12.  What  has  been  the  comparative  ratio  of  increase  of  our 
foreign  trade  to  our  population? 

13.  What  great  change  has  the  increase  of  our  export  trade  in 
manufactures  brought  about  in  our  whole  attitude  toward  foreign 
trade  ? 

CHAPTER  III 

1.  How  did  the  foreign  trade  of  the  United  States  for  the  years 
1917-1918  compare  with  that  for  the  years  1913  and  1914? 

2.  What  two  factors  are  to  be  considered  in  estimating  our  war 

trade  ? 

3.  Tabulate  the  value  of  our  exports  ini9i4  and  191 7  to  Europe, 
to  North  American  countries,  to  South  America,  and  to  Asia. 

4.  What  were  the  principal  articles  of  export  and  of  import 
during  the  war  period? 

5.  What  countries  are  included  under  the  general  name  of  Latin 
America  ? 

6.  Why  is  our  interest  in  trade  with  Latin  America  much 
keener  than  the  total  value  of  that  trade  might  seem  to  warrant? 

7.  What  is  meant  by  our  re-export  trade,  and  why  is  it  im- 
portant ? 

8.  Discuss  the  ability  of  the  manufacturers  of  the  United  States 
to  compete  under  normal  conditions  with  those  of  other  nations. 

9.  What  is  meant  by  the  balance  of  trade  in  our  favor?  Is  a 
"favorable"  balance  of  trade  always  of  advantage  to  a  country? 

10.  What  is  the  condition  of  exchange  between  England  and 
the  United  States  at  the  present  time?  What  are  the  quotations 
to  be  found?  When  the  pound  sterling  is  at  a  discount  in  New 
York  how  are  our  exports  to  England  affected? 


QUESTIONS  313 

11.  What  four  ways  are  there  by  which  nations  buying  of  us 
may  pay  for  their  purchases  ?     What  is  the  most  important  way  ? 

12.  Discuss  fully  the  four  suggestions  given  on  page  41  for 
maintaining  our  export  trade  with  European  countries. 

13.  Why  is  it  highly  important  to  keep  in  mind  the  fact  that 
foreign  trade  means  exchange  of  goods  betwedn  the  nations  par- 
ticipating? How  does  the  total  gold  in  circulation  in  the  world 
compare  with  the  international  trade  for  a  single  year? 

CHAPTER  IV 

1.  Name  in  the  order  of  their  importance  our  eight  leading 
exports. 

2.  What  four  countries  produce  the  bulk  of  the  world's  cotton? 
Name  in  the  order  of  importance. 

3.  What  relation  to  our  balance  of  trade  did  cotton  bear  prior 
to  the  war?    What  imports  may  cotton  be  said  to  have  paid  for? 

4.  What  tendency  is  noted  in  regard  to  cotton  manufactures? 
How  are  raw  cotton  exports  affected  by  this? 

5.  What  relation  to  our  expanding  export  trade  does  iron  and 
steel  manufactures  bear  ?    Name  some  of  these. 

6.  What  change  has  taken  place  in  the  export  of  meat  products  ? 

7.  Discuss  the  subject  of  wheat  production  and  exportation  in 
the  United  States. 

8.  What  influence  has  the  improvement  of  the  internal-com- 
bustion engine  had  upon  our  export  trade  in  petroleum? 

9.  Name  the  five  grand  divisions  in  the  order  of  importance  as 
to  the  value  of  exports  taken  from  the  United  States  in  1914. 

10.  What  is  the  value  of  our  South  American  trade  as  com- 
pared to  our  trade  with  our  North  American  customers,  Canada 
and  Mexico? 

11.  Name  our  twenty  best  customers  in  the  order  of  their  im- 
portance. 

12.  Name  ten  leading  commodities  of  which  the  United  States 
produces  20  per  cent  or  more  of  the  world  supply. 

CHAPTER  V 

1.  Name  four  classes  of  products  imported  by  the  United  States. 

2.  What  explanation  can  you  give  of  the  fact  that  certain  articles 
appear  in  our  lists  of  both  exports  and  imports? 

3.  From  what  continent  did  we  regularly  buy  about  one-half 
of  our  imports  between  1900  and  19 14? 


314  QUESTIONS 

4.  Name  the  principal  products  usually  supplied  by  Canada, 
Cuba,  and  Mexico. 

5.  Give  sources  of  coffee,  sugar,  and  rubber. 

6.  What  are  the  principal  products  received  from  Asia  and 
Oceania,  including  Australia? 

7.  How  do  our  sales  to  South  America  compare  with  our  pur- 
chases ? 

8.  Give  three  reasons  for  the  condition  of  our  South  American 
trade. 

9.  Mention  four  steps  that  may  be  taken  to  increase  our  trade 
with  Latin  America. 

10.  Explain  how  Latin  American  trade  was  diverted  to  England 
before  the  war. 

11.  Explain  fully  why  we  are  desirous  of  developing  our  trade 
with  Latin-American  countries. 

CHAPTER  VI 

1.  Distinguish  fully  between  direct  and  indirect  exporting. 

2.  Outline  in  detail  the  sales  organization  of  a  typical  large 
corporation. 

3.  Give  steps  in  the  conducting  of  a  preliminary  investigation 
of  foreign  markets. 

4.  What  are  some  of  the  facts  disclosed  by  a  trade  report? 

5.  Give  the  steps  in  developing  an  export  sales  organization. 

6.  Describe  the  export  sales  organization  of  the  Standard  Oil 
Company. 

7.  Show  to  what  extent  the  United  States  Steel  Corporation 
influenced  the  development  of  our  foreign  trade. 

8.  What  five  sales  methods  are  employed  in  direct  exporting? 

9.  Describe  in  detail  the  advantages  of  a  branch  office  in  a  for- 
eign country  as  compared  with  a  foreign  agency. 

10.  What  advertising  methods  have  been  found  most  effective 
in  foreign  trade? 

11.  Discuss  the  place  occupied  by  International  Parcel  Post  in 
foreign  commerce. 

12.  What  is  the  Webb-Pomerene  Act,  and  how  does  it  benefit 
American  exporters? 

CHAPTER  VII 

1.  What  five  classes  of  commission  merchants  in  international 
trade  were  distinguished  in  the  seventeenth  century? 

2.  What  are  the  functions  of  a  commission  house  in  foreign 
trade  at  the  present  time? 


QUESTIONS  315 

3.  Distinguish  three  types  of  commission  houses  now  in  opera- 
tion.    Which  one  is  not  strictly  a  commission  house? 

4.  What  are  the  advantages  and  disadvantages  of  selling  through 
an  export  house? 

5.  What  are  some  of  the  ways  in  which  a  manufacturer  may 
co-operate  with  a  commission  house  in  the  promotion  of  sales? 

6.  What  part  have  commission  houses  taken  in  the  marketing 
abroad  of  staple  products  such  as  cotton  and  wheat? 

7.  Describe  in  detail  the  operation  of  the  commission  house  in 
Latin  American  trade.  Mention  some  of  the  methods  used  by 
commission  houses  to  promote  trade. 


CHAPTER  VIII 

1.  In  what  ways  do  the  methods  used  in  exporting  raw  ma- 
terials and  foodstuffs  differ  from  those  employed  in  the  exporta- 
tion of  manufactures? 

2.  Outline  in  detail  the  sale  of  cotton  by  each  of  the  following 
producers: 

(a)  By  the  small  farmer  who  depends  upon  credit; 

(b)  By  the  independent  farmer; 

(c)  By  the  corporations  owning  large  plantations. 

3.  What  two  tendencies  in  the  marketing  of  cotton  promise 
better  returns  for  the  grower? 

4.  How  does  the  actual  business  of  a  cotton  exchange  differ 
from  the  functions  of  such  an  exchange  as  outHned  in  its  charter? 
Discuss  the  good  and  evil  results  of  such  exchanges. 

5.  Explain  the  meaning  of  "hedging"  and  its  advantages  to 
men  actually  engaged  in  the  cotton  trade. 

6.  Mention  three  methods  by  which  the  Western  farmer  may 
dispose  of  his  wheat. 

7.  Through  what  three  channels  does  export  wheat  flow?  How 
does  the  handling  of  Pacific  coast  wheat  differ  from  that  used  in 
connection  with  other  wheat? 

8.  Describe  in  detail  the  methods  of  marketing  cattle  that  pre- 
vail in  the  United  States.  In  what  form  do  we  export  most  of  our 
cattle  ? 

9.  What  three  agencies  are  concerned  in  the  exportation  of  our 
surplus  tobacco?    How  large  is  this  surplus? 

10.  Describe  the  sale  of  tobacco  at  a  tobacco  auction.  What 
other  farm  products  are  largely  sold  through  similar  auctions? 


3i6  QUESTIONS 

CHAPTER  IX 

1.  What  six  documents  are  generally  required  in  making  an 
export  shipment?  Where  may  information  be  had  as  to  the  exact 
rules  governing  shipments  to  each  foreign  country? 

2.  Follow  in  exact  detail  the  filling  and  shipment  of  an  export 
order  from  the  time  it  is  received  until  it  is  on  board  ship. 

3.  What  information  is  given  on  the  heading  of  an  export  in- 
voice? in  the  body  of  the  invoice?  Why  is  it  necessary  to  give 
specific  information  as  to  the  exact  nature  of  each  article  or  pack- 
age? 

4.  Why  is  a  knowledge  of  the  customs  regulations  of  the  coun- 
try of  destination  a  necessary  equipment  of  an  expert  shipping- 
clerk  ? 

5.  What  is  a  shipping  permit?  How  is  it  obtained?  What 
information  does  it  give  in  regard  to  the  shipment? 

6.  What  is  a  dock  receipt? 

7.  What  countries  require  a  consular  invoice?  What  informa- 
tion does  such  an  invoice  give?  In  what  language  is  such  an  in- 
voice written  ? 

8.  Where  can  specific  information  as  to  the  exact  requirements 
for  a  consular  invoice  to  any  specified  country  be  obtained  ? 

9.  What  information  is  given  on  the  shipper's  export  declara- 
tion? Why  is  it  necessary  to  make  such  a  declaration?  Who 
certifies  it? 

10.  What  is  a  railroad  bill  of  lading?  What  three  distinct 
uses  has  a  bill  of  lading?     What  information  is  given  on  it? 

11.  How  does  a  steamship  bill  of  lading  differ  from  a  railroad 
bill  of  lading?  Explain  precisely  what  steamship  freight  covers. 
What  extra  charges  must  be  provided  for  ? 

12.  What  provision  is  taken  in  order  that  the  title  to  an  export 
shipment  may  rest  with  the  holder  of  the  bill  of  lading?  Why? 
Note  exceptions. 

13.  How  many  indorsed  copies  of  the  bill  of  lading^ are  made? 
Why  is  the  number  of  such  copies  that  have  been  made  stated  on 
the  face  of  the  document? 

14.  What  shipping  documents  must  be  in  the  hands  of  the  con- 
signee before  he  can  gain  possession  of  the  goods  ?  Why  is  it  highly 
important  for  the  documents  to  arrive  as  early  as  the  goods  ? 

15.  What  are  the  duties  of  the  shipper's  agent  at  the  port  of 
shipment  ? 

16.  What  services  do  freight-forwarding  agencies  render? 


QUESTIONS  317 

17.  Mention  the  three  ways  in  which  a  bank  may  handle  the 
documents  of  an  export  shipment. 

18.  What  is  the  function  of  manufacturers'  export  agents? 
What  other  similar  agencies  can  you  mention? 

CHAPTER  X 

1 .  What  are  the  most  important  import  regulations  of  the  United 
States  Government  ?  What  is  the  purpose  of  these  laws  and  regu- 
lations ? 

2.  What  advantages  are  afforded  importers  by  the  government- 
bonded  warehouses?     What  is  a  ''drawback  "? 

3.  What  are  the  three  import  documents?     Describe  each. 

4.  How  may  an  American  manufacturer  convert  his  factory 
into  a  bonded  warehouse?     What  is  the  advantage  of  this? 

5.  How  are  imports  appraised?  What  method  is  used  to  facili- 
tate the  removal  of  a  large  import  order  in  case  the  importer  has 
immediate  need  of  the  goods? 

6.  What  percentage  of  our  imports  consists  of  wholly  or  partly 
manufactured  articles?     Name  some  of  these. 

7.  Outline  the  commercial  channels  through  which  manufac- 
tured goods  come  into  possession  of  the  American  importer. 

8.  What  part  do  commission  houses  play  in  the  importation 
of  manufactured  goods  into  the  United  States? 

9.  What  great  merchandise  fairs  held  in  other  countries  draw 
buyers  from  the  United  States? 

CHAPTER  XI 

1.  What  are  the  staple  raw  materials  and  food  products  that 
we  import  in  large  quantities  ? 

2.  What  proportion  of  wool  consumed  in  the  United  States  is 
imported?  Explain  how  insufficient  production  is  not  the  sole 
factor  in  this  import. 

3.  What  has  long  been  the  great  wooi  market  of  the  world? 
What  are  the  special  advantages  of  such  a  world  market  for  wool  ? 
How  is  wool  sold  in  all  great  markets? 

4.  What  great  wool  markets  are  mentioned?  Where  is  most 
of  the  wool  imported  into  the  United  States  purchased? 

5.  Describe  an  Australian  wool  auction. 

6.  Outline  the  methods  by  which  wool  merchants  come  into 
possession  of  this  commodity,  with  special  reference  to  Austraha. 
What  is  the  function  of  the  wool-buyer  in  international  trade? 


3i8  QUESTIONS 

7.  What  part  of  our  supply  of  hides  and  skins  do  we  regularly 
import?     What  arc  the  principal  hides  and  skins  so  imported? 

8.  What  are  some  of  the  leading  world  markets  for  hides  and 
skins  ? 

9.  What  proportion  of  the  rubber  of  commerce  is  produced  on 
plantations?     Where  are  these  plantations  and  who  owns  them? 

10.  Describe  an  importation  of  wild  rubber  from  Brazil. 

11.  What  are  the  sources  of  the  sugar  consumed  in  the  United 
States?     Who  imports  most  of  it? 

12.  What  kind  of  tea  is  sold  at  auction  in  London?  Who  im- 
ports the  Chinese  and  Japanese  tea  consumed  here? 

13.  What  proportion  of  raw  silk  that  enters  commerce  does  the 
United  States  import  ?  How  is  silk  from  China  and  Japan  handled 
here? 

14.  Where  do  we  obtain  most  of  our  coffee?  How  does  the 
Brazilian  broker  dispose  of  his  coffee? 

CHAPTER  Xn 

1.  What  is  meant  by  the  statement:  "Inland  transportation 
facilities  are  quite  as  important  a  factor  in  our  foreign  trade  as 
are  ocean  carriers"? 

2.  What  is  the  mileage  of  the  railroads  of  the  United  States? 
What  body  has  the  power  of  general  regulation  of  the  railroads  ? 

3.  How  may  the  railroads  of  the  United  States  be  grouped  as 
to  territory  served? 

4.  What  suggestions  are  made  as  to  a  greater  utilization  of  our 
inland  waterways?  What  leading  commodities  largely  make  up 
the  trafl&c  on  the  Great  Lakes? 

5.  What  terminal  facilities  are  found  at  most  important  ports? 
Who  provides  these?  In  what  way  are  they  important  in  foreign 
trade  ? 

6.  What  proportion  of  our  foreign  trade  passes  through  the  port 
of  New  York?     What  are  the  other  important  ports? 

7.  Review  the  position  of  the  American  merchant  marine  up 
to  the  period  of  the  Civil  War. 

8.  What  factors  combined  to  prevent  our  regaining  the  mari- 
time supremacy  lost  during  the  Civil  War? 

9.  What  measures  have  been  taken  since  1914  looking  to  the 
upbuilding  of  a  merchant  marine?     With  what  results? 

10.  What  is  meant  by  a  free  port?    What  are  its  advantages? 


QUESTIONS  319 

11.  What  is  meant  by  the  North  Atlantic  trade  route?  What 
ports  does  it  serve  on  the  western  end?  On  the  European  end? 
What  route  takes  up  the  threads  of  the  North  Atlantic  route  at 
European  ports  and  extends  to  southwestern  Asia? 

12.  What  are  the  two  main-travelled  routes  across  the  North 
Pacific?     What  trade  is  most  affected  by  the  Panama  Canal? 

13.  What  are  some  of  the  uses  of  aircraft  in  international 
trade  ? 

CHAPTER   XIII 

1.  What  is  the  great  international  highway?  What  part  of 
our  foreign  trade  is  carried  over  this  highway? 

2.  How  are  the  two  types  of  ocean  traffic  distinguished  ?  What 
class  of  commodities  does  each  embrace? 

3.  Why  is  water  transportation  cheaper  than  that  by  land? 

4.  What  effect  do  the  frequent  fluctuations  in  ocean  freight 
have  upon  c.  i.  f.  quotations? 

5.  What  two  ways  are  used  by  ocean  carriers  in  computing 
freight?     What  is  meant  by  berth  cargo? 

6.  What  is  a  parcels  receipt?     When  is  it  used  to  advantage? 

7.  What  ocean  freight  agents  are  mentioned,  and  what  are 
their  functions? 

8.  What  are  fast  freight  lines?     What  is  their  purpose? 

9.  What  is  a  c.  i.  f.  quotation?  What  does  it  include  and  what 
does  it  not  include? 

10.  What  two  distinct  considerations  are  to  be  kept  in  mind 
when  packing  an  export  shipment? 

11.  Follow  a  shipment  of  household  utensils  from  New  York 
to  an  inland  point  in  Chile. 

12.  How  may  freight  and  tariff  charges  be  affected  by  packing? 
Give  illustrations. 

CHAPTER  XIV 

1.  In  what  way  does  marine  insurance  facilitate  the  financing 
of  foreign  shipments? 

2.  What  is  Lloyd's?  How  was  it  organized?  How  is  marine 
insurance  secured  and  placed  through  Lloyd's? 

3.  Define  the  following  marine-insurance  terms:  policy,  the  as- 
sured, premium,  the  risk,  broker. 

4.  Mention  six  classes  of  marine-insurance  policies.  What 
should  a  shipper  ascertain  in  regard  to  every  policy  taken  out  by 
him? 


320  QUESTIONS 

5.  What  is  meant  by  "perils  of  the  sea"?  In  what  way  has 
the  meaning  of  the  various  clauses  in  the  standard  marine-insurance 
policy  been  interpreted? 

6.  Discuss  the  meaning  of  partial  loss.  How  may  insurance 
be  obtained  against  war  risk  ?  To  what  extent  is  loss  by  fire  cov- 
ered? 

7.  What  is  meant  by  general  average?  What  is  the  scope  of 
the  statement:  ''And  all  other  perils,  losses,  or  misfortunes"? 

8.  What  are  additional  clauses?  Why  are  they  attached  to  a 
policy  ? 

9.  What  is  an  open  policy  ?     What  is  meant  by  a  certificate  of 

insurance  ? 

10.  To  whom  is  the  insurance  policy  made  payable?  What  is 
covered  in  the  amount  of  the  policy? 

CHAPTER  XV 

1.  On  what  credit  terms  has  the  bulk  of  the  world's  export 
business  been  carried  on? 

2.  What  countries  are  especially  dependent  upon  credit? 
How  do  the  seasonal  fluctuations  in  exchange  affect  the  demand 
for  credit? 

3.  What  precautions  should  be  taken  by  an  exporter  before  ex- 
tending credit? 

4.  What  are  the  three  usual  methods  of  extending  credit? 

5.  What  is  the  basis  on  which  the  greater  part  of  the  world's 
trade  is  transacted  ?  Of  what  documents  does  a  foreign  commercial 
bill  of  exchange  consist? 

6.  When  a  foreign  bank  receives  a  documentary  draft  drawn 
on  a  customer,  how  does  it  proceed  ?  What  two  courses  are  open 
to  the  customer? 

7.  How  does  a  draft  drawn  on  a  customer  at  the  expiration  of 
a  credit  term  differ  from  a  documentary  draft?  What  is  such  a 
draft  called? 

8.  What  is  the  concensus  of  opinion  in  regard  to  open  credit? 

9.  What  is  the  occasion  for  long-time  credits?  What  is  the 
usual  term? 

10.  What  four  distinct  phases  of  the  credit  manager's  work  may 
be  mentioned? 

11.  Mention  all  the  different  methods  of  obtaining  credit  in- 
formation. 

12.  Give  some  suggestions  for  safeguarding  foreign  accounts. 


QUESTIONS  321 

13.  Suggest  ways  in  which  the  credit  department  can  keep 
in  touch  with  foreign  risks, 

14.  How  may  the  collection  of  foreign  accounts  be  facilitated 
by  the  credit  department  ?  When  payment  is  refused,  what  agen- 
cies may  be  resorted  to? 


CHAPTER   XVI 

1.  What  handicaps  have  American  merchants  overcome  in  the 
conduct  of  our  foreign  trade? 

2.  How  has  the  extension  of  our  banking  system  through  the 
establishing  of  branch  banks  in  foreign  countries  aided  our  foreign 
commerce  ? 

3.  Explain  in  detail  how  the  Federal  Reserve  Act  has  materially 
assisted  the  development  of  our  foreign  trade. 

4.  Describe  in  detail  a  draft  drawn  by  an  exporter  on  a  cus- 
tomer in  a  foreign  country. 

5.  What  is  a  banker's  acceptance,  and  how  does  it  differ  from 
the  usual  form  of  draft  ? 

_  6.     What  is  a  documentary  draft  and  what  documents  in  addi- 
tion to  the  draft  itself  comprise  this  form  of  commercial  paper  ? 

7.  What  is  the  method  employed  by  the  exporter  in  securing 
cash  where  goods  are  shipped  on  condition  of  ''cash  against  docu- 
ments"? 

8.  What  is  a  Del  Credere  guaranty,  and  how  does  it  affect  the 
marketability  of  the  exporter's  draft? 

9.  Give  the  steps  in  a  typical  transaction  involving  the  dis- 
counting of  a  documentary  draft. 

10.  What  is  a  commercial  letter  of  credit? 

11.  What  is  meant  by  confirmed  credit  and  how  does  it  differ 
from  credit  arising  under  a  letter  of  credit? 

CHAPTER   XVII 

1.  Explain  the  working  of  domestic  exchange,  using  an  example 
similar  to  that  given  in  the  text. 

2.  How  is  the  rate  of  exchange  between  two  financial  centres 
determined  ? 

3.  Why  is  New  York  said  to  be  the  financial  centre  of  the  United 
States  ? 

4.  What  is  foreign  exchange?  What  is  a  bill  of  exchange? 
When  does  a  bill  of  exchange  become  an  acceptance?  Are  all 
bills  of  exchange  drafts  ?     Is  the  converse  true  ? 


322  QUESTIONS 

5.  What  is  the  occasion  for  foreign  exchange?  What  is  the 
typical  example  of  the  working  of  foreign  exchange? 

6.  What  other  factors  besides  the  importation  and  exportation 
of  goods  give  rise  to  transactions  in  foreign  exchange? 

7.  Why  are  banks  able  to  sell  foreign  exchange? 

8.  What  is  meant  by  the  discount  rate? 

9.  What  is  the  mint  par  of  exchange?  How  is  it  determined 
between  any  two  countries? 

10.  What  is  the  commercial  par  of  exchange?  Why  does  it 
fluctuate  ? 

11.  What  are  the  gold  points? 

12.  What  is  the  determining  factor  in  fixing  the  rate  of  ex- 
change between  two  countries? 

13.  Outline  the  causes  of  the  extreme  fluctuations  in  exchange 
between  England  and  the  United  States  during  the  period  of  the 
World  War. 

14.  What  are  some  of  the  advantages  of  dollar  exchange? 

15.  Explain  the  need  of  reciprocal  trade  relations  if  dollar  ex- 
change is  to  take  the  place  of  sterling. 

16.  What  is  arbitrated  exchange? 

CHAPTER  XVIII 

1.  What  is  meant  by  the  balance  of  trade,  and  when  is  such  a 
balance  said  to  be  favorable? 

2.  What  is  the  best  proof  of  the  unsoundness  of  the  mercantile 
theory  ? 

3.  Explain  the  statement:  "Exports  and  services  rendered 
eventually  balance  imports  and  services  received." 

4.  Show  the  impossibility  of  paying  great  international  balances 
in  gold.  How  does  an  excess  of  gold  in  a  country  tend  to  decrease 
exports  and  stimulate  imports? 

5.  What  was  the  relation  between  the  excess  of  exports  over  im- 
ports of  the  United  States  in  the  thirteen  years  between  1904  and 
1 91 6  and  the  total  supply  of  gold  in  circulation  throughout  the 
world  ? 

6.  What  is  the  part  that  securities  play  in  international  trade? 

7.  What  was  the  total  of  our  excess  of  exports  over  imports  for 
the  decade  1 900-1 909,  inclusive?  What  did  we  receive  for  this 
immense  sum  ? 

8.  Mention  a  period  in  our  history  in  which  we  had  an  unfa- 
vorable balance  of  trade,  and  at  the  same  time  added  to  our  stock 
of  the  precious  metals.     What  does  this  illustrate? 


QUESTIONS  323 

9.  When  is  the  foreign  trade  of  a  country  said  to  be  in  equilib- 
rium? 

10.  Into  what  two  divisions  do  countries  having  an  excess  of 
imports  throughout  many  years  fall  ?  In  what  case  is  such  a  bal- 
ance of  trade  improperly  designated  as  unfavorable  ? 

11.  Into  what  two  divisions  do  countries  having  an  excess  of 
exports  throughout  many  years  fall  ?  When  does  a  lending  nation 
become  an  creditor  or  capitalistic  nation  ? 

12.  Trace  the  process  of  evolution  of  a  typical  nation  through 
the  four  trade  periods.     Which  period  is  the  most  desirable  one  ? 

13.  What  two  alternatives  now  face  the  United  States  in  regard 
to  export  trade? 

CHAPTER  XIX 

1.  What  government  departments  directly  co-operate  in  the  de- 
velopment of  our  foreign  trade? 

2.  Give  a  brief  history  of  the  consular  service  of  the  United 
States. 

3.  Describe  the  consular  service  as  organized  in  1919. 

4.  What  are  some  of  the  various  duties  of  consuls  of  the  United 
States  ? 

5.  Name  six  publications  classed  under  the  general  term  of.  con- 
sular reports. 

6.  State  specifically  just  what  aid  American  consuls  give  ex- 
porters and  importers. 

7.  What  are  the  two  most  important  publications  of  the  Bureau 
of  Foreign  and  Domestic  Commerce,  and  what  information  does 
each  contain? 

8.  What  is  a  special  agent?     Outline  his  duties. 

9.  What  specific  services  are  rendered  by  foreign-trade  advisers  ? 

10.  To  what  extent  does  the  diplomatic  service  aid  foreign 
'  trade  ? 

11.  Discuss  the  value  of  commercial  treaties. 

CHAPTER  XX 

1.  What  was  the  position  of  the  United  Kingdom  in  foreign 
trade  in  1913? 

2.  What  were  the  economic  poHcies  that  contributed  to  the 
commercial  supremacy  of  the  United  Kingdom? 

3.  What  influence  has  the  merchant  marine  exercised  in  the  de- 
velopment of  England's  commercial  life? 


324  QUESTIONS 

4.  How  did  the  rapid  development  of  manufacturing  influence 
the  foreign  trade  of  the  United  Kingdom? 

5.  What  effect  has  England's  free- trade  policy  had  on  her  com- 
mercial position? 

6.  What  arguments  are  now  used  in  favor  of  a  protective  policy  ? 

7.  How  did  her  foreign  investments  help  develop  her  foreign 
trade?     Give  examples,  one  or  more. 

8.  What  is  notable  about  the  foreign  trade  of  the  United  King- 
dom between  the  years  1880  and  1913?  During  this  period  was 
the  balance  of  trade  favorable  in  fact  or  in  name? 

9.  What  part  has  the  re-export  trade  played  in  the  developing 
of  British  trade? 

10.  What  percentage  of  British  imports  is  made  up  of  food- 
stuffs ? 

11.  What  five  items  comprise  three-fourths  of  the  exports  of 
the  United  Kingdom? 

12.  What  policy,  consistently  followed,  has  made  British  mer- 
chants impregnable  in  their  own  field? 

13.  Discuss  the  direction  of  British  trade. 

14.  How  was  the  foreign-trade  policy  of  the  United  Kingdom 
affected  by  the  war? 

CHAPTER  XXI 

1.  What  peculiar  conditions  made  foreign  trade  vitally  essen- 
tial to  Germany? 

2.  Describe  in  detail  the  system  which  Germany  organized  for 
the  building  up  of  her  foreign  commerce? 

3.  Name  the  five  principal  factors  in  this  system. 

4.  How  did  government  control  of  railways  and  waterv/ays  con- 
tribute to  the  development  of  foreign  trade  in  Germany? 

5.  Explain  the  operation  of  the  syndicates. 

6.  To  what  extent  did  Germany's  banking  system  co-operate 
for  the  general  good? 

7.  What  was  the  chief  factor  in  Germany's  bargaining  tariff 
and  how  did  this  operate? 

8.  In  what  respect  did  Germany's  foreign  trade  resemble  that 
of  England's? 

9.  What  was  the  character  of  the  bulk  of  Germany's  imports? 

10.  What  factor  was  influential  in  the  development  of  German 
manufactures  ? 


QUESTIONS  325 

11.  What  nation  was  Germany's  best  customer,  and  from  what 
nation  did  she  purchase  the  bulk  of  her  imports? 

12.  What  effect  will  the  reparation  payments  assessed  against 
Germany  have  on  her  future  in  foreign  trade  ?  How  will  she  meet 
these  payments? 

CHAPTER   XXn 

1.  How  does  France  differ  from  England  and  Germany  in  her 
attitude  toward  foreign  trade?  In  what  class  of  exports  does  she 
excel  ? 

2.  What  products  do  the  United  States  and  Italy  interchange? 

3.  What  is  peculiar  in  regard  to  the  foreign  trade  of  the  Nether- 
lands ? 

4.  What  factors  conspired  to  give  Belgium  an  important  posi- 
tion in  foreign  trade? 

5.  What  products  do  we  obtain  from  the  Italian  peninsula? 

6.  What  trade  probabilities  does  Russia  offer? 

7.  What  are  some  of  the  advantages  of  our  close  relations  with 
Canada  ? 

8.  What  latent  resources  in  Mexico  await  development? 

9.  Why  is  the  development  of  trade  with  the  South  American 
countries  important  to  the  United  States? 

10.  What  are  the  leading  exports  and  imports  of  Australia? 

11.  Speak  of  the  commercial  development  of  Japan. 

12.  What  change  in  China's  industrial  life  seems  imminent? 
How  may  this  affect  the  trade  of  nations? 


APPENDIX 

'TARIFF  RATES   IN  FOREIGN   COUNTRIES 
BIBLIOGRAPHY 

Chu,   Chin.     The  Tariff  Problem  in  China.     New  York,   1916. 

(Studies  in  history,  economics,  and  public  law,  ed.  by  the 

faculty  of  political  science  of  Columbia  University,  vol.  72, 

no.  2.) 
CosTiGAN,  E.  P.     Economic  Alliances,  Commercial  Treaties,  and 

Tariff  AdjusUnents.     In  American  Economic  Review,  vol.   8, 

March,  1918,  sup.,  pp.  281-296. 
Emerson,  G.     Tariff  in  Relation  to  Foreign  Trade.     Academy  of 

Political  Science.    Proceedings,  vol.  6,  pp.  168-173.    October, 

1915- 
FiSK,  G.  M.    Internatioftal  Commercial  Policies,  with  Special  Ref~ 

ereftce  to  the  United  States.    New  York,  191 1. 
Keliys  Customs   Tariffs  of  the   World.      191 8.     London,   Kelly ^s 

Directories,  Ltd. 
Reinoso,  J.  J.     Is  It  Desirable  and  Possible  to  Establish  Uniform 

Rates,  Methods,  and   Classification   in   Port  Changes,  Custom 

Regulations,  and  Classifications  Between  the  North,  Central,  and 

South  American  Countries?    Pan-American  Scientific  Congress, 

Proceedings,  1915.    Vol.  II,  pp.  36-56.     1917. 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.    Consular 

Regulations  of  Foreign  Countries.    (Canada  and  Latin  America.) 

(Revised  ed.,  July,  191 5.)     (Tariff  series  24.) 
Supplements,  May,  1916;   April,  191 7.     (Tariff  series  24A, 

24B.) 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.    Customs 

Tariff  of  Australia.    June,  1918,  104  pp.     (Tariff  series  37.) 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.     Customs 

Tariff  of  Chile,  October,  191 7.     (Tariff  series  no.  36.) 
U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.    Customs 

Tariff  of  Cuba.    1911.    (Tariff  series  27.) 

Supplement.    (Tariff  series  27B.) 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.     Customs 

Tariff  of  France.    (Law  of  January  11,  1892,  revised  to  August, 

1910,  with  supplement)     (Tariff  series  no.  25,  25A.) 

327 


328  APPENDIX 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Customs 
Tarif  oj  Venezuela.     (Tariff  series  no.  33.)     191 6. 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Foreign 
Tarif  Notes  from  February,  igii,  to  December,  igiy.  (Re- 
printed from  Daily  Consular  and  Trade  Reports  (later  Commerce 
Reports)). 

U.  S.  Bureau  of  Foreign  and  Domestic  Commerce.  Tarif 
Systems  of  South  American  Countries.    1916.    (Tariff  series  34.) 

U.  S.  Department  of  Commerce  and  Labor.  Bureau  of  Manu- 
factures. Customs  Tarif  of  Italy.  (Law  of  November  24,  1895, 
revised  to  July,  1908.)     (Tariff  series  no.  15.) 

Italy.    Changes  in  the  Customs  Tarif.    1909.     (Tariff  series 

no.  isA.) 
-Italy.     Tarif  Changes  in  1910.     (Tarifif  series  no.  15B.) 


U.  S.  Department  of  Commerce  and  Labor.  Bureau  of  Manu- 
factures. Customs  Tarif  of  J'apan.  (Revised  to  June,  191 2.) 
(Tariff  series  no.  28.) 

Supplement  .  .  .  Tarif    Changes    to    July,    1913.      (Tarifif 

series  no.  28A.) 
-Suppkinent.    October,  1914.    (Tariff  series  No.  28B.) 


U.  S.  Department  of  Commerce  and  Labor.  Bureau  of  Manu- 
factures. Customs  Tarif  of  New  Zealand.  (Law  of  September 
25,  1907.)     (Tariff  series  no.  8.) 

U.  S.  Department  of  Commerce  and  Labor.  Bureau  of  Manu- 
factures. Export  Tarif  s  of  Foreign  Countries.  1909.  (Tarifif 
series  no.  20.) 

U.  S.  Federal  Trade  Commission.  Report  on  Trade  and  Tarif  s  in 
Brazil,  Uruguay,  Argentina,  Chile ,  Bolivia,  and  Peru,  June 
30,  1916. 


APPENDIX 


329 


IMPORTS   AND   EXPORTS  OF   PRINCIPAL   COUNTRIES 

(Compiled  by  the  Bureau  of  Foreign  and  Domestic  Commerce,  Department  of 
Commerce,  from  the  oflScial  records  of  the  various  countries) 

(Years  ending  December  31,  imless  stated  otherwise;  imports  for  consumption 
and  exports  of  domestic  merchandise,  gold  and  silver  bullion  and  coin  not  included, 
unless  stated  otherwise.) 


Countries 

Argentina 

Australia,  Commonwealth 

oi  f  a 

Austria-Hungary 

Belgium 

Brazil  h 

Bulgaria/ 

Canada  e 

Chile 

China  a 

Cuba  h 

Denmark 

Egypt  a 

France 

Germany 

Greece 

India,  British  i  a  e 

Italy 

Japan  k 

Mexico/ J 

Netherlands/ 

Norway 

Portugal 

Russia 

Spain  / 

Sweden  / 

Switzerland 

Union  S.  Africa  d 

United  Kingdom 

United  States  a  g 

Uruguay  he 

Venezuela  g 


Years 


I913 

I913 
I913 
I913 
I913 
I9II 
1914 
I913 
I913 
1914 

1913 
1913 
1913 
I912 
I912 
I914 
I913 
I913 
I913 
I913 
I913 
I912 
I912 
I913 
I913 
I913 
1913 
I913 
I914 

I913 
I914 


Imports 


$406,805,000 

388,102,000 
691,538,000 
974,623,000 
326,865,000 
38,474,000 
633,692,000 
120,274,000 
427,406,000 
133.975,000 
229,234,000 
137,738,000 
1,642,117,000 

&2,544,557,ooo 

30,428,000 

594,521,000 

702,090,000 

363,257,000 

93,020,000 

1,574,990,000 

148,022,000 

80,585,000 

603,463,000 

238,635,000 

226,872,000 

370,525,000 

187,489,000 

3,207,801,000 

1,893,926,000 

50,666,000 

17,005,000 


Exports 


$466,582,000 

365,426,000 
562,247,000 
717,152,000 
315,586,000 

34,634,000 
431,590,000 
144,653,000 
294,010,000 
170,776,000 
170,812,000 
156,506,000 
1,326,950,000 
t2, 131, 718,000 

28,209,000 
792,359,000 
483,255,000 
314,965,000 
129,971,000 
1,239,360,000 
102,084,000 

37,062,000 
782,181,000 
194,281,000 
219,049,000 
265,645,000 
316,880,000 
2,556,106,000 
2,329,684,000 

65,142,000 

26,324,000 


a  Includes  domestic  produce,  b  Final  data,  c  Postal  figures  are  for  1912. 
d  Including  bullion  and  specie  and  articles  for  Governments,  e  Years  ending 
March  31.  /  Includes  bullion  and  specie,  g  Year  ending  June  30.  h  Not  including 
specie,  i  Government  stores  not  included,  j  Imports  through  post-ofi5ce  not  in- 
cluded,   k  Excluding  Formosa  and  Sakhalin. 


330 


APPENDIX 


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APPENDIX 


331 


COMMERCE  WITH   CUBA,   PORTO  RICO,   HAWAII,  AND 
THE   PHILIPPINES 


Fiscal  year 
ended  June  30 

Exports  from  the  United  States  to — 

Cuba 

Porto  Rico 

Hawaii 

Philippines 

1909 

19IO 

I9II 

I912 

1913 

I9I4 

I915 

1916 

I917 

I918 

$43,913,356 

52,858,758 

60,709,062 

62,203,051 

70,581,154 

68,884,428 

75,530,382 

127,040,067 

178,292,328 

235,469,608 

$23,272,170 
26,478,100 
34,671,958 
38,470,963 
33,155.005 
32,568,368 
30,149,764 
34,927,311 

49,539,249 

58.945,758 

$17,125,765 
20,289,017 

21,925,177 
24,647,905 
30,646,089 
25,571,169 
24,600,585 
30,825,187 
44,274,475 
43,646,515 

$11,182,175 
16,768,909 
19,723,113 
23,736,133 
25,384,793 
27.304,587 
24,691,611 

23,365,899 
27,217,831 
48,425,088 

Fiscal  year 
ended  June  30 

Imports  into  the  United  States  from — 

Cuba                  Porto  Rico 

Hawaii 

Philippines 

1909 

I9IO 

I9II 

I912 

I913 

I9I4 

I915 

1916 

I9I7....... 

1918 

$96,722,193 
122,528,037 
110,309,468 
120,154,326 
126,088,173 

131,303,794 
185,707,901 
228,977,567 
253.395.410 
264,024,006 

$26,391,338 
32,095,788 
34,765,409 
42,873,401 
40,529,665 
34,423,180 
41,950,419 
60,906,453 
73,062,221 
65,054,503 

$40,399,040 
40,161,288 
41,207,651 
55,076,070 
42,713,184 
40,678,580 
60,610,935 
62,703,730 
74.365,938 
79,260,894 

$9,433,986 

17,317,897 
17,400,398 

23,257,199 
21,010,248 
18,162,312 
24,020,169 
28,232,249 
42,436,247 
78,101,412 

The  shipments  of  merchandise  from  the  United  States  to  Alaska  ia  1916  were 
$26,502,311;  to  the  United  States  from  Alaska,  $47,619,894. 


WORLD'S  PRODUCTION  OF   RUBBER 

(Showing  the  great  increase  in  plantation  rubber,  in  tons) 


1905 

igio 

191S 

Brazil 

34,000 

26,800 

145 

40,500 

21,300 

8,200 

38,000 
10,000 
90,000 

Other  wild  rubber 

Plantation 

332 


APPENDIX 


WORLD'S  PRODUCTION  OF   COTTON 

(Bales  of  500  lbs.) 


Countries 

1915-16 

1914-1S 

1913-14 

1912-13 

United  States 

India 

12,633,960 

3,490,000 

910,000 

220,000 

14,766,000 

3,337,000 

1,235,000 

240,000 

14,494,000 

4,592,000 

1,439,000 

387,000 

13,943,000 

3,468,000 

1,416,000 

370,000 

Egypt 

Brazil  and  all  others. 

WORLD'S   CONSUMPTION   OF   COTTON 

(Bales  of  500  lbs.) 


Countries 

1915-16 

1914-is 

1913-14 

1912-13 

United  States 

Great  Britain 

Continental  Europe. 
India 

7,110,000 
4,000,000 
4,500,000 
1 ,660,000 
2,303,000 

5,806,000 
3,900,000 
5,000,000 
1,648,000 
2,381,000 

5,680,000 
4,300,000 
6,000,000 
1,680,000 
2,198,000 

5,531,000 
4,400,000 
6,000,000 
1,643,000 
2,068,000 

All  others 

WORLD'S   PRODUCTION   OF   WHEAT 

(In  bushels) 


Countries 

191S 

1914 

1913 

United  States 

Russia 

1,011,500,000 

891,017,000 

776,960,000 

312,032,000 

319,667,000 

161,280,000 

105,237,000 

113,904,000 

169,442,000 

116,089,000 

145,944,000 

49,270,000 

59,217,000 

55,000,000 

106,600,000 

29,654,000 

30,000,000 

2,205,000 

32,831,000 

763,380,000 
959,818,000 
362,693,000 
321,000,000 
231,717,000 
151,348,000 
187,391,000 
214,405,000 
112,401,000 
171,075,000 
83,236,000 

British  India 

France 

333,376,000 

258,102,000 

336,258,000 

152,934,000 

178,221,000 

170,541,000 

139,298,000 

160,000,000 

89,241,000 

68,652,000 

60,000,000 

25,626,000 

46,212,000 

34,654,000 

11,023,000 

39,148,000 

Canada 

Hungary 

Argentina 

Italy 

Spain 

([jermany 

Roumania 

England 

Austria 

Australia 

94,880,000 
40,000,000 
36,848,000 
5,511,000 
38,426,000 

Bulgaria 

Algeria 

Tunis 

Egypt 

APPENDIX 


333 


WORLD'S  PRODUCTION  AND   CONSUMPTION  OF  COFFEE 

(In  thousands  of  pounds) 


Country  producing 

Country  consuming 

Brazil 1,490,715 

Central  America 231,315 

Venezuela 121,350 

Colombia 136,500 

Dutch  East  Indies.. . .        63,799 
Haiti 57,594 

United  States 1,055,089 

Germany 362,084 

France 304,813 

Austria-Hungary.  .  .         130,952 

Netherlands 85,955 

Beleium 93,250 

Sweden 63,744 

United  States  (Insular)        48,179 
British  India 39,973 

Italy 88,102 

United  Kingdom 32,723 

Denmark 31,967 

All  others 343,000 

THE  TWELVE   GREATEST  SEAPORTS 

The  following  table,  prepared  by  the  Bureau  of  Foreign  and  Domestic  Com- 
merce, Department  of  Commerce,  shows  the  relative  rank  in  tonnage  movement  of 
the  principal  ports  of  the  world.     Figures  of  coastwise  trade  are  not  included. 


Port 


New  York  a 

London  g 

Hamburg  b 

Rotterdam 

Hongkong- Victoria  c 

Shanghai  d.^ 

Rio  de  Janeiro 

Marseilles 

Liverpool  h 

Singapore  e 

Colombo/ 

Cardiff 


Year 


1915 
1913 
1913 
I913 
1912 
I912 

I913 
I912 

1913 
1912 
I912 
I913 


Entered  tons 


12,647,606 
13,725,156 
14,185,000 

12,307,358 
10,805,536 
9,186,340 
8,458,896 
7,986,609 
12,054,056 
7,927,842 
7,348,900 
7,617,450 


Cleared  tons 


12,162,374 
11,403,908 
14,440,000 
12,200,906 
10,809,459 
9,456,463 

8,459,451 
8,076,767 

11,209,415 
7,955,305 
7,347,144 

10,447,151 


a  Fiscal  year,  b  Includes  only  oversea  navigation,  c  Exclusive  of  Chinese 
junks  d  Tonnage  of  vessels  entered  and  cleared  at  the  Maritime  Customs,  e  Ex- 
clusive of  native  craft,  warships,  transports,  yachts,  and  vessels  under  50  tons. 
/  Excluding  the  tonnage  of  vessels  that  called  for  the  purpose  of  coahng  and  or 
orders  only,    g  Includes  Queensborough.    h  Includes  Birkenhead. 


INDEX 


Aden,  foreign  trade  of,  8 

Africa,  American  war  trade  with, 

31.  34 

American  Academy  of  Political 
and  Social  Science,  154 

American  Manufacturers*  Export 
Association,  194 

American  Merchant  Marine,  need 
of,  66;  early  position  of,  149  jf.; 
eflFect  of  steamships  on,  150^.; 
effect  of  Civil  War  on,  151 ;  de- 
cline  of,    151  ffr,    revival   of, 

152/. 
Amsterdam,    wool    marketed    in, 

130;   an  Atlantic  port,  156 
Antwerp,  wool  marketed  in,  130; 

an  Atlantic  port,  156 
Argentina,  wool  imported  from,  3 ; 

products  of,  303;    British  trade 

with,  303;   German  trade  with, 

303;    French  trade  with,  303; 

American  trade  with,  303 
Asia,  American  war  trade  with, 

31.  34 

Asia  Banking  Corporation,  203 

Atchison,  Topeka  &  Santa  Fe 
Railroad,  145 

Australia,  wool  imported  from,  3; 
wool  produced  in,  128,  130;  size 
of,  305;  population  of,  305;  de- 
velopment of,  305;  products  of, 
305;  English  trade  with,  305; 
German  trade  with,  305;  Amer- 
ican trade  with,  30$  ff. 

Austria-Hungary,  parcel-post  in, 
80;  trade  of,  299  Jf. 

Balance   of  trade,  definition   of, 
232,  234;  settlement  of,  234/. 
Baltimore,  an  Atlantic  port,  155 
Belfast,  an  Atlantic  port,  156 


Belgium,  re-export  trade  of,  50, 
298;  manufacturing  In,  297; 
American  trade  with,  298;  prod- 
ucts of,  298 

Blessing  of  the  Bay,  149 

Borneo,  gutta-percha  produced  in, 
136 

Boston,  wool  marketed  in,  130; 
leather  marketed  in,  134;  rail- 
road terminus,  144;  value  of 
trade  of,  149;  early  trade  of, 
150;  an  Atlantic  port,  155 

Bradstreet,  mercantile  agency,  193 

Brazil,  commission  houses  in,  91; 
rubber  yield  of,  135  #.;  coffee 
produced  in,  139;  American 
tariff  agreement  with,  255 ;  prod- 
ucts of,  304;  German  trade 
with,  304;  American  trade  with, 
304;   English  trade  with,  304 

Bremen,  cotton  marketed  in,  98; 
wool  marketed  in,  130;  an 
Atlantic  port,  156 

Buffalo,  commercial  centre,   144, 

147 
Bureau  of  Foreign  and  Domestic 
Commerce,  6,  78,  108 

Cairnes,  239 

California,  ports  controlled  by, 
148 

Central  America,  coffee  produced 
in,  139;  products  of,  302; 
American  trade  with,  302 

Ceylon,  tea  produced  in,  137  ff. 

Charleston,  a  railroad  terminus, 
144 

Chicago,  wheat  elevators  in,  102; 
wheat  marketed  in,  103;  a  dis- 
tributing centre,  142,  144  ff.; 
a  railroad  centre,  147 


335 


33^ 


INDEX 


Chicago,  Milwaukee  &  St.  Paul 
Railroad,  145 

Chile,  products  of,  304 

China,  American  cotton  used  In, 
45;  tea  produced  in,  137  jf-; 
silk  produced  in,  139;  condi- 
tions in,  307;  resources  of,  307; 
products  of,  308 

Christiania,  an  Atlantic  port,  156 

Cincinnati,  a  commercial  centre, 
144 

Civil  War,  commerce  afifected  by, 

17,  151 

Clausen,  John,  204 

Cleveland,  a  commercial  centre, 
144 

Coffee,  American  use  of,  139; 
production  of,  139;  methods  of 
growing,  139;  methods  of  sell- 
ing, 140 

Collins  Line,  founding  of,  250 

Colombia,  coffee  produced  in,  139; 
products  of,  304;  English  trade 
with,  304;  American  trade  with, 

304 
Colon,  an  Atlantic  port,  155 
Commerce,  origin  of,  i;    control 
of,   2;    transportation   and,   4; 
effect  of  steam  on,  5;  growth  of, 
6;  use  of  aircraft  in,  158 
See  also  United  States,  United 
Kingdom,  etc. 
Consular  service,  requirements  for, 
246 ;   duties  of,  247  ff. ;   reports 
of,  249;  foreign  trade  aided  by, 

247  #• 
Copenhagen,  an  Atlantic  port,  156 

Copper,  32 ;  export  of,  50 
Cotton,  value  of,  20,  29;   Impor- 
tance of,  43  ff. ;  methods  of  sell- 
ing, 94  Jf.;  speculation  in,  98^.; 
"future  trading"  In,  100 
Cuba,  sugar  produced  in,  137 
Cunard  Line,  founding  of,  250 

Day,  Prof.  Clive,  84 

Delaware,  colonial  industry  in,  13 

Denmark,  trade  of,  299 


Department  of  Agriculture,  96  ff. 

Department  of  Commerce,  for- 
eign trade  aided  by,  245,  254 Jf.; 
publications  of,  253;   agents  of, 

253/- 
Department  of  State,  foreign  trade 

aided  by,  245 
Detroit,  a  commercial  centre,  144 
"Dollar    exchange,"    desirability 

of,  206;    establishment  of,  206; 

advantages  of,  226  ff. 
Duluth,  a  distributing  centre,  142, 

145/. 

Dun,  R.  G.,  &  Co.,  mercantile 
agency, 193 

Dutch  East  Indies,  rubber  pro- 
duced in,  136 

England,  foreign  trade  built  by, 
3;  American  colonial  trade 
with,  13;  parcel-post  in,  80; 
tobacco  tariff  in,  106;  tea  im- 
ported by,  138;  shipbuilding 
in,  151;  credit  system  of,  200. 
See  also  United  Kingdom 

Federal  Reserve  Act,  need  for, 
201 ;  foreign  trade  provisions  of, 
202 ;  result  of,  203 

Federation  of  British  Industries, 
277 

Finance  Act  of  1919,  277 

Fleming,  William  B.,  248 

Food-stuffs,  exportation  of,  20  ff. ; 
importation  of,  22  ff. ;  value  of, 
30  #. 

Fortnightly  Review,  270 

France,  foreign  trade  of,  6;  In- 
dustrial balance  in,  10;  Ameri- 
can war  trade  with,  32;  use  of 
cotton  In,  43,  98;  parcel  post 
in,  80;  silk  produced  in,  139; 
monetary  system  of,  220;  Amer- 
ican securities  in,  242;  tariff 
policy  of,  265;  British  trade 
with,  275;  American  trade  with. 


INDEX 


337 


294,  296;  trade  situation  in, 
294;  self-sufficiency  of,  294; 
manufacturing  in,  295;  prod- 
ucts of,  295;  Argentine  trade 
with,  303 
Frankfort,  merchandise  fair  at, 
126 

Galveston,  cotton  shipped  from, 
98;  export  trade  of,  149;  an 
Atlantic  port,  155 

Germany,  foreign  trade  built  by, 
3, 6,  279^.,  287;  cotton  used  in, 
43,  98;  re-export  trade  of,  50; 
parcel-post  of,  80;  commission 
houses  in,  92;  tobacco  used  in, 
105;  credit  system  of,  200; 
monetary  system  of,  220 ;  Amer- 
ican securities  in,  242;  British 
trade  relations  with,  258,  274, 
289;  manufacturing  output  of, 
263;  population  of,  263,  279; 
tariff  policy  of,  265  ff.,  286  ff.\ 
organization  of  industry  in,  280 
f.',  banks  of,  285;  imports  of, 
288;  exports  of,  288;  American 
trade  with,  298  ff.\  results  of 
war  in,  291  ff.\  Argentine  trade 
with,  303;  Brazilian  trade  with, 

304. 
Glasgow,  merchandise  fair  at,  126; 

an  Atlantic  port,  155 

Gold,  standard  of  value,  220; 
points,  221;  shipment  of,  224, 
236;  trade  balance  settled  by, 
234  ff.;  amount  of  in  circula- 
tion, 236;  American  importa- 
tion of,  242 

Gow,  William,  176,  178. 

Granger  railroads,  144  #. 

Great  Lakes,  145  #. 

Great  Northern  Railroad,  145 

Great  Western,  150 

Guaranty  Trust  Company,  82, 
192,  200;  foreign  branch  of,  203 

Gutta  percha,  production  of,  136; 
use  of,  137 


Halifax,  an  Atlantic  port,  155 
Hamburg,    cotton    marketed    in, 

98;  wool  marketed  in,  130;   an 

Atlantic  port,  156 
Havana,  an  Atlantic  port,  155 
Havre,  cotton  marketed   in,   98; 

an  Atlantic  port,  156 
Hawaii,  sugar  produced  in,   137; 

cofifee   produced   in,    139;    size 

of,    306;      products    of,     306; 

American  trade  with,  306  ff. 
Hides,  18,  33;  importation  of,  133 
Hong  Kong,  a  Pacific  port,  158 
Honolulu,  156  jf. 

India,  rubber  produced  in,   136; 

tea  produced  in,   137  ff.\    silk 

produced  in,  139 
Indianapolis,  a  commercial  centre, 

144 
Inland    waterways,     neglect    of, 

145  #•;   improvements  of,  146; 

traffic  on,  146^. 
International    Banking    Corpora- 
tion, branches  of,  203 
International   Trade   Conference, 

227 
Interstate  Commerce  Commission, 

143 
Iron,  20,  30;  importance  of,  45#.; 

French  manufacture  of,  295 
Irving  Trust  Company,  192 
Italy,   American  trade  with,   32, 
296;     silk    produced    in,    139; 
monetary  system  of,  220;  prod- 
ucts of,  296 

Jacksonville,  a  railroad  terminus, 
144 

Japan,  American  trade  with,  31 
ff.,  307;  cotton  used  in,  45;  tea 
produced  in,  I37  #•;  silk  pro- 
duced In,  139;  rate  of  exchange 
in,  224;  development  of,  307; 
products  of,  307 

Johnson,  Prof.  Emory  R.,  163 

Jones,  Chester  Lloyd,  172 

Joy,  Benjamin,  201 


338 


INDEX 


Kansas  City,   meat-packing  cen- 
tre, 104;    a  central  distributing 
point,  142,  145 
Kentucky,  tobacco  grown  in,  105 
Kr  on  Prinzes  sin  Cecilie,  223 

Latin  America,  trade  of  United 
States  with,  32,  34  ff.,  52,  61, 
63  J?".;  European  trade  with,  63 
jf.;  commission  houses  in,  91; 
consular  invoices  in,  1 1 1 ;  ex- 
change in,  185;  interest  charges 
in,  188;  dollar  exchange  in,  228 

Leather,  export  of,  50;  manu- 
facture of,  133/-;  sources  of, 
134  #•;   control  of,  134 

Leipzig,  merchandise  fairs  at,  126 

Liverpool,  cotton  exchange  in,  99; 
an  Atlantic  port,  156 

Lloyd's  Association,  I74#. 

Lloyd,  Edward,  174 

Lloyd  George,  David,  277 

London,  merchandise  fairs  at,  126; 
wool  marketed  in,  129;  hides 
marketed  in,  135;  tea  marketed 
in,  137;  an  Atlantic  port,  finan- 
cial centre,  215,  230 

Los  Angeles,  a  Pacific  port,  149, 

156 

Los  Angeles  and  Salt  Lake  Rail- 
road, 145 

Louisville,  tobacco  marketed  in, 

Lyons,  merchandise  fairs  at,  126 

Manaos,  rubber  industry  in,  135 
Manila,  a  Pacific  port,  156 
Marseilles,   leather   marketed   in, 

135 
Maryland,  colonial  commerce  of, 

15 

Massachusetts  Bay  Colony,  150 
Meat  products,  importance  of,  46; 
war  trade  in,  47;    methods  of 
selling,  104;    methods  of  ship- 
ping, 105 
Melbourne,  wool  marketed  in,  130 


Mercantile  Bank  of  the  Americas, 

192;   branch  of,  203 
Mexico,  coffee  produced  in,  139; 

resources  of,   301;    exports  of, 

301 ;  American  trade  with,  301^. 
Middle  West,  development  of,  16; 

wool  grown  in,  132 
Milwaukee,  Great  Lakes  shipping 

centre,  146 
Minneapolis,  wheat  elevators  in, 

102  ff.]   meat-packing  in,  104 
Mississippi    Valley,    development 

of,  16 
Mobile,  an  Atlantic  port,  155 
Montreal,  an  Atlantic  port,  155 
Moody's  Investors'  Service,  225 

National   Association    of    Manu- 
facturers, 193  #.,  198 
National  City  Bank,  192,  203,  242 
National  Shawmut  Bank,  227 
Netherlands,   re-export   trade  of, 
50,  297:    American  trade  with, 
297;   products  of,  297 
New  England,  colonial  commerce 

of,  14/. 
New  Jersey,  colonial  commerce  of, 

New  Orleans,  commission  houses 
in,  91 ;  cotton  shipped  from,  98; 
cotton  exchange  in,  99;  coflfee 
marketed  in,  140;  a  railroad 
terminus,  144;  trade  of,  149; 
an  Atlantic  port,  155 

New  York,  colonial  industry  in, 
13,  15;  commission  houses  in, 
91;  cotton  exchange  in,  99; 
wool  exchange  in,  130;  belt- 
ing industry  in,  134;  silk  mar- 
ket, 139;  coffee  market,  140; 
piers  in,  148;  foreign  trade  of, 
149;  an  Atlantic  port,  155; 
clearing  house  in,  214 

New  York  Barge  Canal,  146 

New  Zealand,  population  of,  306; 
wealth  of,  306 

Nizhi  Novgorod,  merchandise  fairs 
at,  126 


INDEX 


339 


Norfolk,  a  railroad  terminus,  144 
Northern  Pacific  Railroad,  145 
Norway,  trade  of,  299 

Ocean  freight,  types  of,  160; 
tramp  steamers,  161;  cost  of, 
162/.;    packing  of,  168/. 

Oceania,  American  trade  with,  31, 

34 
Omaha,  meat  packing  centre,  104; 

central  distributing  point,  142 
Oregon  Short  Line  Railroad,  145 

Palsh,  Sir  George,  238,  267 

Panama  Canal,  149,  156  ff. 

Pan-American  Union,  303 

Paterson,  N.  J.,  silk  manufac- 
tured in,  139 

Peck,  William  E.,  189 

Pennsylvania,  colonial  industry 
in,  13,  15 

Penny,  David  H.  G.,  229 

Pensacola,  railroad  terminus,  144; 
an  Atlantic  port,  155 

Peru,  products  of,  304;  American 
trade  with,  304 

Petrograd,  an  Atlantic  port,  156 

Petroleum,  export  of,  50;  control 
of,  93 

Philadelphia,  colonial  commerce 
of,  13;  wool  market  in,  130; 
leather  trade  in,  134;  ownership 
of  wharves  in,  148;  an  Atlantic 
port,  155 

Philadelphia  Commercial  Mu- 
seum, 194 

Philippines,  gutta  percha  pro- 
duced in,  136;  sugar  produced 
in,  137;  products  of,  306; 
American  trade  with,  306 

Pittsburg,  a  commercial  centre, 
144 

Portland,  a  Pacific  port,  156 

Porto  Rico,  sugar  produced  in, 
137;  coffee  produced  in,  139 

Portugal,  commerce  of  N.  E. 
colonies  with,  14 


Quebec,  an  iVtlantic  port,  155 

Railroads  of  the  United   States, 

mileage  of,  143;  growth  of,  143; 

control   of,    143;     grouping   of, 

144  Jf. 
Rate  of  exchange,  determination 

of,   214;     fluctuations   of,   221, 

223;   fixing  of,  222^. 
Riga,  an  Atlantic  port,  156 
Roberts,  Elmer,  285 
Rotterdam,  an  Atlantic  port,  156 
Rovensky,  John  E.,  227 
Rubber,     18;      source     of,     135; 

American  use  of,  135;   methods 

of  selling,  136 
Russia,  American  trade  with,  32, 

299;     German    domination    of, 

299;  products  of,  299 

St.  Louis,  central  shipping  point, 

142,    145;     commercial   centre, 

144 
Salem,  early  trade  of,  150 
Samoa,  a  Pacific  port,  157 
San  Diego,  a  Pacific  port,  144,  156 
San  Francisco,  silk  market  in,  139; 

a  Pacific  port,  149,  156 
Savannah,   cotton   shipped   from, 

98;  a  railroad  terminus,  144 
Seattle,  a  Pacific  port,  156 
Shanghai,    silk    market    in,    139; 

Pacific  port,  156 
Silk,  32,  34;  American  production 

of,    138;    importation   of,    139; 

methods  of  handling,  139 
Smith,  Adam,  9 
Smith,  Henry  B.,  130 
Smith,  J.  Russell,  161 
Soo  Canal,  146 
South  America,  North  American 

trade  with,  31,  303 
Southern  Pacific  Railroad,  145 
Spain,  American  trade  with,   14, 

298;  silk  produced  in,  139;  prod- 
ucts of,  298 
Standard  Oil  Company,  19;    sell- 


340 


INDEX 


ing  organization  of,  71  Jf.;  for- 
eign trade  of,  72 

Stockholm,  an  Atlantic  port,  156 

Suez  Canal,  I56jf. 

Sugar,  33,  35:  American  consump- 
tion of,  137;  American  importa- 
tion of,  137;  control  of,  137 

Sumatra,  gutta  percha  produced 
in,  136 

Sydney,  wool  market  in,  130 

Tacoma,  a  Pacific  port,  156 
Tahiti,  157 

Tampa,  a  railroad  terminus,  144 
Tea,  production  of,  137;   methods 

of  selling,  137  ff.\    methods  of 

growing,  138 
Tobacco,  17;  amount  grown,  105; 

exportation  of,  105;  methods  of 

selling,  106 
Toledo,  a  commercial  centre,  144 
Treaty  of  Ghent,  16 

Union  Pacific  Railroad,  145 
United  Kingdom,  foreign  trade  of, 
6,  160,  258/.,  270/.;  American 
war  trade  with,  31  ff.\  cotton 
used  in,  43  ff.,  98;  re-export 
trade  of,  50  ff.\  commission 
houses  in,  92 ;  tobacco  imported 
by,  105;  monetary  system  of, 
219;  rate  of  exchange  in,  223 
Jf.;  unfavorable  balance  of 
trade  in,  236;  American  securi- 
ties in,  242;  effect  of  war  on, 
241  Jf.,  275  /.;  free  trade  in, 
259,  264;  merchant  marine  of, 
260  ff.;  manufactures  of,  262 
ff.\  population  of,  263;  foreign 
investments  of,  266  ff. ;  imports 
of,  273;  exports  of,  273;  dis- 
tribution of  trade  of,  274;  Ar- 
gentine trade  with,  303;  Brazil- 
ian trade  with,  304;  Colombian 
trade  with,  304 
United  States,  growth  of  manu- 
factures   in,    6,    8,    16,    19  ff., 


263;    products  of,  8,  13  #.,  i9 
ff.,  42  ff.;    commerce   of:    co" 
lonial,  13,  150;  effect  of  Consti- 
tution   on,    15;    effect   of    Na- 
poleonic wars  on,  is  ff-',   effect 
of  War  of  1812  on,  16;  effect  of 
Western   development   on,    16; 
effect  of  Civil  War  on,  16  ff.; 
growth  of,  I9#.,  25,  51  /.;   ef- 
fect of  World  War  on,  28^.;  re- 
export trade  in,   36   ff.;     1919 
trade  of,  38;   favorable  balance 
of  trade  in,  39  ff.,  237  /. ;  Euro- 
pean trade  relations  with,  51  ^., 
275,   289  ff.;     Canadian   trade 
relations    with,     52,     300     if.; 
Mexican  trade  relations  with, 
52,    301   ff.;     South    American 
trade  relations  with,  52,  303^.; 
Asiatic  trade  relations  with,  53 
ff.;    Australian  trade  relations 
with,  54;  African  trade  relations 
with,  54  ff. ;   imports  of,  58  ff. ; 
parcel  post  in,  80;   commission 
houses  in,  85,  89;  customs  regu- 
lations in,   120  ff.;    wool  pro- 
duced in,  128;  wool  sold  in,  132 
ff.;     hides    imported    by,    133; 
leather  industry  in,  134;    rub- 
ber imported  by,  135  #.;    rub- 
ber manufactured  in,  135;  sugar 
in,  137;    tea  imported  by,  137 
ff.;  silk  Imported  by,  139;  con- 
sumption of  coffee  in,  140;  sale 
of  coffee  in,  140;    railroads  in, 
143  ff.;    inland  waterways  in, 
145  #•;   ports  of,  147/.;   mer- 
chant marine  of,  149  Jf.;   over- 
seas commerce  of,  160;   freight 
packing  in,  iSgff.;  rates  of  ex- 
change in,  221  jf.;  consular  ser- 
vice of,  245  ff. ;    population  of, 
263;    tariff  policy  in,  255,  265; 
Central   American   trade   with, 
302;    West  Indian  trade  with, 
302 
United    States   Shipping    Board, 
152/. 


INDEX 


341 


United  States  Steel  Corporation, 
19;    selling  organization  of,  73 

#. 

Vancouver,  a  Pacific  port,  156 

Van  Dyne,  248 

Venezuela,  coffee  produced  in, 
139;  products  of,  304;  Ameri- 
can trade  with,  304 

Vera  Cruz,  an  Atlantic  port,  155 

Webb-Pomerene  Act,  81  ^. 
Webster,  Prof.  William  Clarence, 

264,  269 
West  Indies,  American  trade  with, 

i3#M  16;  products  of,  302 
Westerfield,  85 
Western  Pacific  Railroad,  145 


Wheat,  export  of,  48;  methods  of 
selling,  loi  ff. 

Winthrop,  Governor  John,  149  Jf. 

Wilmington,  a  railroad  terminus, 
144 

Wool,  18,  32;  American  production 
of,  128;  markets  of,  129  ff.\ 
methods  of  selling,  130  ff. 

World  War,  6;  internationalism 
affected  by,  10;  foreign  trade 
stimulated  by,  23,  28;  prices 
affected  by,  29;  shipbuilding 
affected  by,  102;  rate  of  ex- 
change affected  by,  222  ff.; 
financial  position  of  United 
States  affected  by,  242;  finan- 
cial position  of  England  affected 
by,  276;  financial  position  of 
Germany  affected  by,  291  ff. 


^^        14  DAY  USE 

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i 

LD  21A-40m-ll,'63 
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General  Library 

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THE  UNIVERSITY  OF  CAUFORNIA  UBRARY 


